With the Treasury Committee’s inquiry into student loans underway, many parents and grandparents of graduates – particularly those on Plan 2 loan schemes – are wondering whether they should help pay off a student loan or wait. Weatherbys Private Bank has published a new guide, Spotlight on student loans, that includes data analysis to help answer this difficult question.
The guide covers the loan terms and the differences between the various plans for undergraduate and postgraduate students in England and Wales. It also includes case studies with projections that estimate how much different graduate earners might expect to pay back over a lifetime.
It concludes that, as things stand today, anyone in a decent professional job, including teachers, GPs, management, is likely to pay more – in some cases much more – than they borrowed. And the current threshold freezes make this even more likely.
Since the Plan 2 scheme was introduced, the threshold has fallen relative to average wages. The National Living Wage for adults has risen a third in the past four years. Had the graduate repayment threshold risen in line with this it would be £36,500 by April next year.
The guide highlights the discussions parents and grandparents should be having with their loved ones and provides insights into how to make sure that, whatever they decide, they act tax-efficiently.
Weatherbys Senior Tax Adviser Clare Munro said: “My son has a Plan 2 student loan, so this is a discussion we’ve been having in my family. It’s not an easy one.”
Changes in the law on Inheritance Tax and pensions have added another dimension to the question. Munro added: “Since pensions will become liable to Inheritance Tax in April 2027, many parents are looking to start transferring their wealth to their children sooner than they had originally planned. It’s important for families to understand how best to do this and where the money is best placed to help. The answer will be different for each family. For many repayment makes sense; for others the gift may be better used for a house deposit.”
Weatherbys Head of Clients Oliver Barnett said: “At a time when there is considerable uncertainty around the student loan system, many families are having to make important decisions without absolute clarity. Our role is to help them understand their position and feel confident in the choices they make.”
After the results of the Treasury Committee’s inquiry are announced, Weatherbys will update the guide to ensure families have the most current information available to use as part of their financial planning.
