Savings: Junior ISA Could Help Early Loan Repayment



Savings could keep your child from incurring interest on debt.

Savings could keep your child from incurring interest on debt.

A government White Paper has announced the possible scrapping of plans to penalise students for paying off their loans early. This means that graduates with the proper savings or help from their parents could be able to avoid incurring interest on their university loans.

This is an important victory for student advocates and those wishing to cast off the burden of debt sooner, as interest could amount to as much as £12,000 after the future tuition fee increase.

Student controversy

Scrapping the penalties for paying off debts early may be an important political decision for the government as well, as it has been under fire recently for what some see as an anti-student stance.

Critics were especially vocal about the controversial tuition fee raises to be in effect in 2012, as they say government austerity measures are hardly affecting large corporations in the name of spurring on growth, while students are slapped with up to £9,000 per year in tuition.

A second controversial announcement earlier this year said that students who paid off their potential £27,000 of debt to escape interest would be penalised.

Many accused the government of wanting to keep students in debt, or of wanting to ensure that they fall victim to the high interest traps of the banking sector. However, others argue that scrapping the penalties for early repayment only helps wealthier students whose families can afford to pay off their debt before incurring interest. Some families, however, may have put money away in children’s savings accounts for their child, and the scrapping of the bill is perfect for those with Child Trust Funds, Junior ISAs, and other accounts that give the children cash lump sums when they turn 18.

Tuition hike

Despite possibly aggravating the effect of tuition raises on poorer students, allowing early tuition repayment means an entirely new way to use the money from a children’s savings account. Account such as the Junior ISA, which turn into a normal adult ISA after the child hits 18, allows parents to save for university while their child is already attending. Their child can then use the savings to pay off loans before incurring interest.

Loan repayment is currently such an important topic because the average cost of university is set to almost hit the maximum, despite ministers maintaining that the maximum rate of £9,000 would only be allowed in special circumstances.

While they anticipated the average tuition fees set by universities to come in at around £7,500, recent figures suggest that £8,500 is a more realistic expectation.

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