For many, applying for a student loan is more of a necessity than a choice. A lucky few however, are able to get financial aid from their parent, or might even be in a strong enough financial position to get credit themselves. Regardless, you should resist the urge to pay any fees upfront yourself, particularly if this involves borrowing money from somewhere else, and we'll explain why.
For many students, as well as their parents, the media reports of students leaving uni with thousands of pounds worth of debt can be a daunting prospect. And as such, some may even look to take out loans for their children to avoid them having this financial burden later on. This is a bad idea as it will generally cost you thousands of pound more in interest, than taking out aid specifically aimed at students. The financing system is designed is such a way at the moment, so that those who benefit more financially from their education end up paying more back, and you should look to play this 'risk' as a way of taking advantage.
Take that bet
The government are basically making a wager, and the odds are all in your favour. They're betting that at the end of the qualification, they can provide enough jobs for each graduate- above the set earning threshold for repayment. It's a win-win situation for you. The current earning threshold is set at a respectable £21,000, which is more than a living wage in most of the country.
The interest rate is currently set between the rate of inflation and inflation +3%, depending on earnings. Don't be fooled into thinking that you can get a better interest rate anywhere else. It's true that you can find 5% rates advertised by lenders, but the important thing to point out is that the student loan repayment rate, only applies to 9% of wages earned over the £21,000 threshold. As mentioned; it's structured in this way, so that those who benefit most end up contributing more back.
In practice, someone on a £30,000 salary would pay back only £810 over a 12 month period. On the other-hand, a lucky graduate who managed to secure a salary of £80,000, would have to pay £5,310 a year. The disparity between the two is clearly massive, but it seems fair to assume (that thanks to their opportunity of education), the higher earner would have more of a disposable income and could therefore make more of a contribution back to society.
For those that simply earn less than £21,000, the scenario is simple; you've had a free education, - or at least payments are deferred until you earn more. The threshold should also rise periodically, with the next review in 2017. This means, that if you're level of employment stays around the same amount, you shouldn't accidentally catch up to the threshold by increases in your wages due to inflation.
Shouldn't I just use savings, rather than taking the risk?
You can, of course, use money you already have available, but it seems pointless. As mentioned, the student loan is really a win-win bet for any academic. True there is the interest rate to consider, but the rates and threshold it's set at really makes it worth the risk. Also, keeping your savings in savings account is likely to be more beneficial in the long run, as it will continue to generate interest.
You may be concerned that if you or your child is unable to earn enough, then they will have a massive outstanding debt against their name, affecting eligibility for future credit. You should fear, not as student loans are exempt from credit files, and there is no debt collection agency attached to student loans, which means it really can be considered as free finance in some situations.