Changes being introduced to student loans are likely to present some university graduates – especially those not moving into high-paid jobs – with the burden of longer-lasting and more expensive debt as a legacy of their studies. Maybe you can help reduce their student loan debt.
Key points in the new rules
New rules will affect students starting their university courses from September 2023. The main points are:
- The repayment term is being extended from 30 to 40 years.
- The earnings threshold at which students start making repayments will drop to £25,000.
- The interest rate charged will match the retail price index (a dramatic rise in RPI has already seen the UK government cap the 2022 rate at 7.3%).
For parents and grandparents who want to reduce student loan debt by helping to pay tuition fees, there are some options to consider.
Making a gift
First, you can make a gift of £3,000 a year to someone without tax liability. You can give more than that – but there may be a liability if you die within seven years.
Using a trust
A second option for grandparents is to put funds into trust for their grandchildren, which can then be used to pay fees. Trusts come with set-up costs and ongoing work to prepare accounts and annual tax returns, but can be hugely beneficial for income tax, capital gains tax and inheritance tax (IHT) planning.
Parents can also set up trusts for their children if they are over 18, although IHT is likely to be less of an issue in this case.
Personal loans
Parents or grandparents could also take out a personal loan to cover fees, which could be cheaper than the capped interest rate for student loans. Of course, the repayment term will be far shorter, and parents and grandparents should generally ensure that they don’t have to rely on their children or grandchildren for repayment.
Can we help?
At Shipleys, we can arrange for a trust to be created and provide ongoing guidance on this. There’s more on trusts on our website in these articles:
The Income Tax and Capital Gains Tax Benefits of Trusts
There’s also information on gifts in Ground Rules on Gifts – Inheritance Tax Myth Busters
If we can help in any way, speak with your usual Shipleys contact or one of our specialists shown on this page.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
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