Assuming an initial loan amount of £ 54,500, that person would end up paying £ 163,630 before clearing the balance after 30 years.
Another graduate – starting at £ 60,000 a year this time – would pay £ 121,310 and redeem the loan nine years before it expires.
In both cases, it would have been worthwhile to make additional voluntary contributions, especially in the first few years of life. The problem, of course, is that nobody knows what they’re going to make in the next three decades. For example, reducing a loan of £ 10,000 shortly after you close it could be completely unsuccessful. Voluntary repayments are non-refundable.
So what’s the solution? For parents who want to help pay off their children’s loans but are not eager to throw money into a black hole, it is a better idea to invest the money until it becomes clear that paying back some of it will be beneficial would.
A sum of £ 10,000 invested in a cheap global “tracker” fund through an Isa can return 4 percent annually after fees (learn more about setting up an Isa Here). Over the course of a decade, the pot will have grown to nearly £ 15,000. If your circumstances change, you can easily withdraw the money tax-free at any time.
Fortunately, I have 16 years to think about the right things at The Boy. Now that I’ve paid off my own loan, I can at least put a little more aside each month to help him with what I envision studying Britain’s first £ 1million degree.
Do you have a question or comment about parents’ finances? Email me: [email protected]