Don’t pay your children’s university fees in Japan

Well, you can if you really want to. But read this first

I talk to a lot of people about money, and there seems to be an unwritten assumption that parents should just pay for their children’s university fees in Japan.

I’m not sure where this comes from.

My wife and I did not pay university fees for our three daughters. Instead, they got student loans, which just about covered their fees at a private university. They lived at home so didn’t have to pay for rent or food. They got part-time jobs to get spending money.

Once they graduated and started working, they paid off their loans, which had a low interest rate of well under 1%.

I think there are three good reasons for parents not to pay their children’s university fees in Japan, but instead encourage them to take out student loans.

Skin in the game

I was a university lecturer in Japan for thirteen years so I ended up teaching thousands of students. Some took their studies very seriously, others less so.

Taking out loans to attend university helps young people understand the financial commitment they are making. It raises the stakes.

When you are paying for something, you value it more and pay more attention to what you are buying. I think this is a good thing for university students.

Opportunity cost

Much like the cheap home loans in Japan, student loans are easy to get and have low interest rates.

For parents, investing the money they might otherwise have used to pay their children’s university fees can make a lot of sense. You are likely to see it grow more than the interest on the loans, you retain control of it, and you can always choose to give it to your children later to help them with their student loan payments if you really want to.

But you don’t have to.

Even giving the money to your children to invest in their NISA account is likely to be a good move compared to just paying the money to the university (provided you trust your kids, that is).

Undermining your future

Sacrificing your own savings and investments to pay your children’s university fees could be a mistake if it leaves you unprepared for retirement or adverse life events.

On the other hand, student loans in Japan have a number of safeguards for borrowers built in. Apart from the low interest rates, it is possible for borrowers to have their repayments postponed, the amount of monthly payments reduced, and even have the payments cancelled if they become unable to work or die.

Some companies even pay a portion of their employees’ student loans as part of their compensation package.

It is far better for both you and your children if you have solid finances. This will allow you not to be a burden on them later in life, put you in a position to help them financially if you want to, and give them an example of how to build a financially stable situation.

Many people don’t think deeply that you can take out a loan for university, but not for your own retirement!

Someone very clever on Facebook

What if I still want to pay?

Obviously this is completely fine, and what many people do. But do make sure you understand the alternatives and have thought through the consequences.

Taking out student loans in Japan is not necessarily the same as it is in other countries, and you may find that getting loans is actually a better option for you and your children.

It’s important to consider all the options and make an informed decision.

How about you? If your children already went through university, how did your family handle this? If you have younger children, what are you planning to do?

16 Responses

  1. “… you may find that getting loans is actually a better option for you and your children.” Or, you may not.

    Mine was not funded by my parents, but in retrospect not having loans to pay after uni simply equated to freedom. Freedom to jump halfway around the world on a whim for a job that paid nothing, and having done that, to keep on at it. How to place a value on being able to follow your heart?

    Maybe a parent could set up a trade off: Student studies and gets into public uni (国立/県立), then the parent will pay. Choose or end up at a private school, and the student will take out loans. Same with living at home or away–live at home free, or live away and use loans. Or some combination of that–public/private, living at home, or away. Or parents pay for the first 2-3 years, and the kid (loans) pays the anything after that. (Also, to put it politely, it may be ‘better’ for your kid(s) to do uni away from home, both for their maturation and your sanity.)

    What do you do if your kid is set on a certain (level of) school, but misses on the exams? A year of ronin/study and exams again? Parents pay, or loans for that, too? How does the equation then change?

    One of ours did uni here (stem-related) and after graduating and a couple years as a lab assistant there got into a grad program in the US with a full stipend. Why cripple/hinder that trajectory with loans to be paid back? That said, I know of someone else who did an MA here, took out loans, and I think because of excellent grades, the loans were forgiven.

    A former colleague (Canadian) was able to shoehorn his two direct into uni in Canada, using his parents’ address and (I think?) their dual status–effectively free. So having family to take advantage of, along with dual status, is something to keep in mind.

    There is competition for the slots, but many if not all 国立 schools now have partnership/exchange programs with schools abroad. It’s pretty smooth–if accepted, you continue to pay the same tuition here while your kid attends the partner school for an academic year. You pay transport and living costs, but if in a dorm at the foreign school it can work out cheaper than a comparable year here.

    And so on.

  2. Thanks! For this I did not know the interest rates were so low for student loans makes sense to invest the money and get one of these low interest loans

      1. My daughter is heading to university in April, and I don’t fancy paying millions of yen. What are some companies/banks that provide student loans in Japan? What company did you use?

        Some pointers would be appreciated! Cheers.

    1. Justin–gosh if anyone would know about this stuff it’d be you, esp. if being a foreign student happened to be part of the equation. (Says the guy that used to take his bike up to his office, above you on the 4th floor…)

  7. Hi Ben, thanks a lot for an interesting food for thought. Sounds like a really good deal to have the kid to take the loan (and have them feel the responsibility) while still be able to make up for the interest if you have a money ready to pay for them. I was wondering, are these loans available only to kids who have Japanese nationality? Or could “only” permanent residents be eligible? Also related to recent events I have witnessed in my life, have you come across some sort of health expense related loan? There are treatments that are not covered by standard Japanese health insurance at all and if a person does not have any extra life insurance, they might need to gather quickly a lot of money. Have you heard about any loan scheme in Japan that would help with that? Thanks for interesting read as always

    1. Hi Jan

      Great question: I am not sure. I would assume that residents of Japan qualified, but that might not be the case. I will look into it for a future post.

      I am not aware of specific healthcare loans, but there are general loans from banks that can be used for almost anything other than investing I believe.

      Not sure how common it would be to need treatment not covered by national health insurance. Maybe something else to look into for a future post!

  8. JASSO: loans are only available to Japanese nationals

    JASSO has living stipends for foreign students but must be applied for in advance by hosting institution

    For foreign student MEXT scholarships are the best route, – tuition babi or, point to point airfare, living stipend of approx 140,000 jpy. You cannot be a resident of Japan unless you’re going from masters on to PhD. You must apply for them overseas, and there are two main types embassy scholarships or university recommended scholarships.

    Other organizations such as JICA gives scholarships to foreign students but that must be applied for in a JICA targeted country.(developing nations).

    Many prefectures have loans for students who are resident of the pressure fracture and are financially disadvantaged. As well if you’re looking into an area such as nursing, some city hospital center attached to schools will give you free tuition in exchange for five years of working at the hospital or similar.

    If your children are Japanese nationals, JAS asshole it’s very easy to get and you can get the information from the University that you’re applying to. It’s pretty much close to automatic if you are not rich.

    Hope this helps