For many parents, particularly those who have spent years paying private school fees, there is an instinctive assumption about university: we can afford the fees, so why would we saddle our children with debt?
But is paying the fees actually the best financial decision?
I recently posed this question to a group of financial advisers and it produced a surprisingly lively debate. And having looked at the numbers, I think the answer is far less obvious than it first appears.
First, how much are we talking about?
For simplicity, I’m looking at the English student finance system for an English-domiciled student starting a conventional three-year undergraduate course in autumn 2026. Scotland, Wales and Northern Ireland have different arrangements.
For 2026/27, tuition fees can be as much as £9,790 a year, so potentially £29,370 over three years according to Student Finance England’s 2026/7 guidance
There is also the Maintenance Loan. This is means-tested, so children from higher-income families generally receive the minimum amount. For 2026/27 that’s £5,048 a year if living away from home outside London and £7,039 in London according to the government’s maintenance loan tables
At today’s rates, therefore, a three-year student outside London could potentially borrow around £44,500, while in London it could be around £50,500.
That’s a substantial amount of money. But student loans are also a very unusual form of debt.
How does the loan work?
Under the current Plan 5 system, the interest rate from September 2026 is 4.1%, equal to RPI inflation. Unlike the previous Plan 2 system, there isn’t an additional interest margin of up to 3% on top. (Student Loans Company- 2026/26 rate announcement)
Graduates repay 9% of earnings above £25,000, regardless of how much they owe.(Guidance on Plan 5 repayments)
Someone earning £30,000 therefore repays around £37.50 a month. At £50,000 it’s about £187.50, and at £100,000 it’s around £562.50.
Any outstanding balance is eventually written off after 40 years.
So this isn’t quite like starting adult life with a £50,000 bank loan. How much the student ultimately repays depends heavily on their future earnings.
Why not just pay it?
Suppose you have £50,000 available.
You could use it to pay university costs and your child starts work without student debt. There is clearly something attractive about that.
But you’ve also permanently spent the £50,000.
Alternatively, your child takes the government loans and you retain the capital.
Perhaps that money stays invested. Perhaps it eventually becomes a house deposit. It could fund postgraduate study, help them relocate for their first job or simply remain available until you have a better idea of what they need.
And you can always use it to repay the student loan later.
That’s the bit I think is often missed.
At 18, you have very little idea what your child’s financial life will look like at 25 or 30. Why make an irreversible £40,000 or £50,000 decision today when you don’t have to?
What about investment returns?
This was probably the biggest disagreement among the advisers I discussed this with.
If parents have the money available but choose to retain and invest it while their child borrows, aren’t they effectively borrowing to invest?
There is some logic to that argument.
And there is absolutely no guarantee that an investment portfolio will outperform an inflation-linked student loan over three, five or ten years.
So I wouldn’t look at this simply as an opportunity to borrow at 4.1% and hope to make 7% in the stock market.
The stronger argument, in my view, is flexibility.
Keeping the capital gives the family options. Spending it doesn’t.
The child’s future earnings matter enormously
Imagine two graduates.
One becomes a teacher and is unlikely to repay their student loan in full before the remainder is written off.
The other becomes a highly paid lawyer, banker or technology executive and is likely to repay the entire balance plus interest.
For the second graduate, paying off the loan early could eventually make considerable sense.
For the first, parents clearing the entire loan could effectively be volunteering to repay money that would otherwise have been written off.
The difficulty is that you don’t know which situation you’re dealing with when your child is 18.
Take the loan and you can make that decision later, when you have much better information.
And perhaps a little skin in the game isn’t a bad thing
There is also a psychological argument.
If Mum and Dad pay the tuition fees, accommodation and living costs, university can easily become another thing that’s simply being provided.
Taking the loan means the student has some financial investment in their own education.
One adviser described his approach as: “you’re paying to be there”. He favoured taking the loan and then potentially clearing it for his children later.
I rather like that.
University is, after all, an investment in their future. Having some responsibility for that investment may encourage them to take it more seriously and give them an early understanding that financial decisions involve trade-offs.
Of course, every child is different. For some, a large student loan balance creates genuine anxiety. Others barely think about it.
That is part of the planning decision too.
So what would I do?
For parents who can comfortably afford university costs, I wouldn’t automatically pay them.
I’d be inclined to let the student take the available Tuition Fee and Maintenance Loans and keep the equivalent family capital ring-fenced elsewhere.
That doesn’t mean it should all be aggressively invested. If the money might be needed within a few years, the investment strategy needs to reflect that.
Then reassess.
Once your child has graduated and their career starts taking shape, you’ll know far more about their likely earnings and what would genuinely help them.
Perhaps you clear the loan.
Perhaps the money is better used as a house deposit.
Perhaps they need it for further study.
You can always repay a student loan later. You can’t retrospectively ask the government to lend you £50,000 because you’ve discovered the money would have been more useful somewhere else.
Sometimes good financial planning isn’t about finding the highest return. It’s about keeping your options open.
Want to talk it through?
If you have children approaching university and are wondering whether to pay the costs yourself, take the available student finance or invest money for them instead, get in touch with us.
There isn’t one answer that works for every family. We can look at your own finances, your child’s circumstances and the wider family plan and help you decide which approach makes the most sense.
- Repayment examples are illustrative and assume the current £25,000 Plan 5 annual repayment threshold and a repayment rate of 9% of earnings above that threshold. Student finance rules, thresholds, interest rates and loan amounts may change.
- This article is provided for information only and does not constitute personalised advice or a recommendation.
- The value of investments and any income from them can go down as well as up, and you may not get back the amount originally invested.
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