Category: Student Loans

Should Parents Pay off their Child’s Student Loan?

Parents are often very protective over their children and will help them wherever they can. This means that they could help them financially as they approach adulthood as well as helping them in many other ways as well. It is natural for them to care about their offspring and want to help them.

Parents who have children that want to go to university or have been face the problem of student loans. It is likely that if they went to university, they would have received a grant to cover their course fees and some of their living expenses and so they were unlikely to have needed to borrow money to pay for it. It can seem rather unfair that things have changed and you may feel that you do not want your children to bear the brunt of this change.

However, it is worth understanding a bit more about the UK student loan scheme before you worry too much about it. The repayments on the loan do not have to be paid until the graduate’s salary reaches a certain level and it will then be taken out of their tax code. This means that they will not have to make formal repayments. After thirty years the debt will be written off and they will no longer have to make any more repayments. At the moment a quarter of students have not repaid all of their loan by the time they reach that thirty year threshold and often they have not repaid what they borrowed let along any of the interest. Therefore if you repay the loan when your child graduates, you may be paying back far more than would be repaid if you left it and let the repayments be taken out of the tax code. Of course, if you keep the loan for the full term, then you will end up paying back more than if you paid it back early, because of the cost of the interest. However, chances are that the full amount will not be repaid anyway. If your child takes on a really well paid job as soon as they graduate, then it is more likely that they will end up paying back the full loan and more worthwhile considering whether to pay it off.

As well as whether it is financially viable to repay the loan, it is worth considering whether it is good for a parent to pay off their child’s debts. Although it can feel great to help them out, it may not be sending the right message to the child. They may feel that it is okay to borrow money because their parents will be able to pay it back for them. It could lead them to become more careless with their money. Obviously you will know your child and how they tend to be with money. You will know whether they are likely to borrow a lot of not. Obviously, some borrowing is good, such as a student loan or borrowing to buy a home, but if they start borrowing money for all sorts of reasons and think that it does not matter as parents will help out, this can be tricky. It is likely that you will not always be able to help them out and then they will get stuck as they will not know how to properly manage their money so that they can make the necessary repayments on their own.

It is also worth considering the effect on other family members. If you have more than one child and end up helping one out a lot more than the others then there could be jealousy between them. This could make your relationship with them awkward or their relationship with each other. It could even spread further than direct family with other members asking for money, should they need it. Also if the parent has to turn down a request for money, perhaps because they do not have it or because they do not agree with what it is being spent on, then this could cause problems as well. It may seem like an easy decision, to give your children an easier start in life, but it is worth thinking about the consequences of that before you go ahead and help them.