student loans

(41 Posts)
Moominmammacat Tue 29-Jan-13 13:36:17

Does anyone think student loans aren't the marvellous thing the Government would have us believe? By its own calculator, if my DSs borrow £56,000 for a four year course(£9,000 tuition and £5,000 maintenance per year) they'll pay back £154,030 over 30 years, paying 6.6% interest from day one. Wouldn't we be better off taking out a second mortgage at 1.99% than doing this? Or am I missing something vital?

TalkinPeace2 Tue 29-Jan-13 14:49:45

BECAUSE they are not a loan they are a tax.
You only pay back 9% of your earnings over a certain amount.
If you never earn enough, you never pay back.
If your earnings drop, so do your repayments.
Anything you have not repaid after 30 odd years is written off.
Find me a mortgage with terms as jammy as that

goinggetstough Tue 29-Jan-13 16:22:59

True "TP" on the face of it. However,there are negative things about it too. It states that the terms and conditions for the student loan can be changed at any time( as discussed on a previous thread) and most( ok not all) graduates would hope to earn over £21000 shortly after graduating.. So the interest is accruing as soon as they take out the loan in their first year and they will be paying back as soon as they earn £21000 or whatever figure the government decide. Plus the amount loaned will not necessarily cover their accommodation costs let alone food.
We were very lucky when we went to University!!!! Full grants etc

TalkinPeace2 Tue 29-Jan-13 16:26:01

But once your loan has been taken out, the terms on THAT loan are fixed.
So old low interest ones stayed low, even when the new ones went up.
Its not an open cheque book (almost)
and yes, grants were lovely :-)

creamteas Tue 29-Jan-13 21:12:40

Talking there is nothing to say they can't change the terms and conditions after the loan has been taken out. They might need a Bill to do it, but it could be done.

The new threshold for repayments is better than the old one. But when the old one was introduced, it was quite generous as well they never index-linked the point at which you start repaying (and I'm sure they will do the same this time)

TalkinPeace2 Tue 29-Jan-13 21:16:38

creamtes
Retrospective legislation on loan agreements is unheard of - it would have so many ramifications that they would never risk it.
When you sign a loan agreement the terms are stated.
Those are the terms for the duration of that loan.
The following year's one might have different terms.

goinggetstough Tue 29-Jan-13 21:49:45

"This guide provides information about the current terms of your loan and repayment.
The regulations may change from time to time and this means the terms of your loan may also change. This guide will be updated to reflect any changes and it is your responsibility to ensure you have the most up-to-date version."

This comes from the guide to student loans, so it shows that the terms may change. Martin Lewis ( Money Saving Expert) says as they would have to change the law it is unlikely they would do it, but they could. It happened in New Zealand when they changed the rate from 10 to 12%.

So sadly TP it is possible!

TalkinPeace2 Tue 29-Jan-13 21:52:10

has it happened in the UK - just that the UK's finance Acts are worded to protect LOTS of borrowing and the lawyers would have a field day.

honestly I'd regard changes in loan terms as theoretically possible rather than actually

MariscallRoad Wed 30-Jan-13 01:36:35

Moominmammacat mortgage interest rates can change too; house prices may change. There are unpredictable factors in both study and homeownership. Perhaps a talk with your bank manager is an idea taking along DS. What does DS think?

boomting Wed 30-Jan-13 02:44:17

It's highly unlikely that terms for existing loans will change, so there's very little point in worrying about it.

Most people won't pay off the full amount of their loans before they are written off after 30 years. Repayments are based purely on how much you earn not how much you owe. Repayments are 9% of anything you earn over £21,000 per year. So, for instance, if he was to earn £26,500 (UK average, I believe) then he would pay 9% of £5500, so £495 per year. The repayments are deducted from wages before you see them, just like tax.

If he was to die / end up disabled / be made redundant / become a househusband / decide to jack it all in and be a destitute artist, then no repayments would be due on his student loan, unlike a mortgage.

eatyourveg Wed 30-Jan-13 07:30:08

what I want to know is if you die, does your debt pass onto the nok as an outstanding sum due or is it written off?

eatyourveg Wed 30-Jan-13 07:45:36

woops - didn't read the post above - not awake properly yet

Moominmammacat Wed 30-Jan-13 12:59:23

Mariscallroad, at the moment he plans to earn £10,000 a year for living costs ... don't know about the tuition element, maybe a loan from us but do not want them missing out on free money. I would have thought most would manage to earn £21,000 + though ... it's all that interest that bothers me.

noddyholder Wed 30-Jan-13 13:02:27

It seems ridiculous that after spending over 50k on an education you may not earn over 21k

chicaguapa Wed 30-Jan-13 13:15:07

The interest is only the cost of inflation. So in real money terms, they'll only owe what it's worth that day. IYSWIM?

TalkinPeace2 Wed 30-Jan-13 13:25:51

Moomin
please do not borrow the money yourself.
Friends are currently going broke because for some reason they will not take out student loans for their kids - and its crippling them. They might lose their house so save their children being in debt shock

Student loans are a tax.
A tax on having higher earning potential because of a degree.
If the degree will not give higher earning potential, do not do it.

PattyPenguin Wed 30-Jan-13 19:43:47

Chicaguapa, at the moment the interest rate is the inflation rate plus 3%.

Remember, the threshold at which borrowers start paying, the interest rate and other conditions can all be changed through "secondary instruments" i.e. amendments to the existing regulations or new regulations; a new Act of Parliament will not be necessary. That's on existing loans, not just new ones taken out after any regulations are passed.

The repayments on a student loan are indeed a form of tax - and taxes can go up very easily.

TalkinPeace2 Wed 30-Jan-13 20:13:05

Patty
can you find me the clause where they can change the terms on existing loans
because that was NOT the case with DH's that were still running when the rate system was changed, but he still paid the old rate.

creamteas Wed 30-Jan-13 20:34:48

TP when they have changes the system previously, they choose not to alter existing loans. Most people believe that it would be the same in future, but there are no absolute guarantees.

MariscallRoad Wed 30-Jan-13 20:43:13

Moominmammacat, It is v good that ds will earn as a student a fair amount and would be good if he could keep it in savings. Not all students take loans and families may chose different financing methods than loans and mortgages.
It might be best - this is just IMO - to try and generate a a lump sum from savings from work and invest it and try and get a cheapest IR mortgage for spending. One can put a lump sum as adown payment for a house but if it is spent you dont regenerate it easily. The IR is something to worry because it is taken account of into the outgoings of a first time buyer.

TalkinPeace2 Wed 30-Jan-13 20:50:27

Creamteas I have to disagree. I have DH's loan agreement. THe one he signed. A contract. It says his interest would be "0.75% below base for the duration of the loan". There is NO WAY (under contract law - which takes precedence) they could alter that without renegotiating the loan.

goinggetstough Wed 30-Jan-13 21:25:58

www.studentloanrepayment.co.uk/pls/portal/docs/PAGE/RPIPG001/RPIPS001/RPIPS006/DG_200469.PDF

This is the link to the terms and conditions for loans taken out 2012/13 and it states that the terms of the loan can change as Creamteas has mentioned. These are the terms and conditions for loan taken out this academic year so that is maybe why your DH's contract is different.

The future problem is that universities have charged higher fees than the Government predicted. So unsurprisingly they have a shortfall, as they have loaned more money than they expected. So sadly for students in future years 2013+ the terms and conditions probably will be very different to this year's Ts and Cs. So if they can recoup their money this way they will not have to change the terms and conditions for those who took out loans this year, but if they can't, who knows what they will do!

TalkinPeace2 Wed 30-Jan-13 21:35:25

OK, I've read that link.
The interest rate - RPI plus 3% is set in the contract terms. RPI can change, but the 3% cannot.
Yes, the earnings start point can be altered so they could be nasty and drop it right down, but the interest rate is locked.

noddyholder Wed 30-Jan-13 22:52:05

I think this is one the govt will definitely tamper with.Student loans and inheritance tax.

PattyPenguin Sat 15-Jun-13 16:58:28

Just reviving this thread. Don't want to alarm anyone, but the Treasury is worried about the percentage of student loans that will never be paid off in full. So various ideas are being discussed including
"The Treasury is said to have suggested that the threshold could be lowered, perhaps as low as £18,000 in a move which could potentially save hundreds of millions of pounds."

Daily Telegraph article here www.telegraph.co.uk/education/educationnews/10119622/Students-must-pay-back-loans-sooner.html

Another suggestion
"A confidential report commissioned by the government has proposed redrawing the terms of student loans taken out over the past 15 years, that would make them more expensive to pay back for 3.6 million borrowers in England alone.

The proposal to increase the interest rates on the £40bn worth of loans is the most controversial of a series of options contained in a Whitehall-commissioned study examining how the coalition could privatise the entire stock of student loans issued since 1998.

Increasing the amount that students would be forced to pay back would make the loans more attractive to buyers."

Guardian article here www.guardian.co.uk/money/2013/jun/13/raise-interest-rate-student-loans-secret-report

fussychica Sat 15-Jun-13 17:42:28

They did it to all the women who expected to get their pension at 60 who had it moved to 65 then 66 for some - thousands of pounds of expected pension gone in an instant. So I wouldn't be in at all surprised if they do something like this to students. If the changes only apply to pre 2012 loans it's win, win for the government as it won't have any adverse affect on student numbers. bastards

fussychica Thu 27-Jun-13 16:46:49

The student Maintenance Grant has been frozen for 2015/16 in the latest spending review. Very well hidden and barely reported.

dotnet Fri 28-Jun-13 22:07:00

My sister, whose daughter took on a loan under the old terms (around £3k a year) along with a loan for living costs, tells me the dd (now working) is currently paying back £30 - £40 a month in INTEREST ALONE. And that's under the old system, where the amount the govt asked the student to repay, was only a third of what is demanded now by Nick Clegg and the Tories.
I see something very bad building up in the future. I am desperately sorry for new students - and also for those would-be students who DON'T go in for higher education, who would have done, when HE was free, as it still is in Scotland and, I think, in Wales. The Scots have always had a lot of respect for education. The English Toffs just pretend they do.
This is a bad, bad new system. People who defend it, put forward the argument: 'Hey, it doesn't matter if can't face up to your debt; if your earnings stay low, you'll never have to.'
What a bloody irresponsible mindset to inculcate in our kids.
The whole thing stinks. Thank God my dd has escaped the worst of this fucking awful new system.

greyvix Sat 29-Jun-13 20:50:35

Why are people not outraged about this? My DS has applied for a loan for tuition fees as well as maintenance. The loan conditions are far from clear: what sensible person ever took out a loan on these terms? I am seriously concerned that this whole generation is going to be saddled with massive debt. Who gets the money (way above base rate)- the Student Loan Company or the government?

noddyholder Sun 30-Jun-13 16:50:03

The threshold was lowered to 16k in April but the amount due at that level is £1 a month. I spoke to a friend about this and she seemed to think it is £1 atm but the threshold was lowered so that the admin was in place for when they re band this at a later date. It is a disgrace

Scarletbanner Sun 30-Jun-13 17:10:07

The Govt (Vince Cable, who's in charge of HE) have denied
that they are going to increase interest rates for pre-2012 borrowers

Don't forget that students and their parents are voters, so the Govt can't go too far, whatever the T&Cs say.

I certainly wouldn't be taking out a mortgage for my DCs' fees. They can take out loans. If they earn loads of money, they can pay the loan back early without penalty. If the yearn v little, they need never repay it. Far better than a mortgage.

If I had money, I'd give it to them for a deposit, rather than pay their fees for them.

greyvix Sun 30-Jun-13 22:50:59

So are the interest rates applicable immediately or when they graduate?
For loans taken out in 2013 and beyond, the interest rates seem very high.

PrincessOfChina Sun 30-Jun-13 22:56:42

They've changed the terms before so they'll change them again.

I started uni as part of he first cohort to pay tuition fees (1998). Initially my loan was paid off at 9% of salary over £15k. That altered to be £21k a few years ago. They also did something with the interest rate when RPI (or whatever it used to be based on) actually dropped below 0%. I had a few months of paying no interest when actually it should have been them paying me!

dotnet Mon 01-Jul-13 23:41:09

greyvix the interest clock is ticking from the time a student gets his or her loan; that's my understanding, anyway. Which must mean a graduate whose income doesn't hit the repayment threshold for, say, ten years, will have a huge amount of rolled-up interest to start paying off, ten years down the line.
When Nick Clegg, Vince Cable, Norman Lamb and the other turncoat LibDems, along with the Conservatives (with a few honourable exceptions, like David Davies) gave the green light to astronomical student fees, I'd have hoped they'd have made a gesture of decency by guaranteeing those enormous debts with which they were saddling our children, would at least be interest free. But no.

figroll Tue 02-Jul-13 17:43:29

My dd2 goes to university in October and we have really agonised over the loan. We could pay for her as we had a bit of money left to us, but have decided that it might be best to give her some money as a deposit on a house later on. It is so hard and so unfair that it only applies to students from England. I am quite worried about it and wonder if we are doing the right thing. If they borrow the maximum of £13000 a year with compound interest of around 6.6% it is a huge debt. It's going to be at least £42,000 after 3 years. If they change the rules after she has taken it out to the students' detriment, I am going to start a one woman demonstration and chain myself to the railings at Downing Street!!

Also, she may well marry someone with a similar debt, so that will mean starting life with a £90,000 debt. All going up at approx 6.6% every year unless inflation goes up in which case it could be astronomical.

Moominmammacat Wed 03-Jul-13 17:33:09

Well, I think it's all horrifying, as I said at the beginning of this thread in January. But will anyone be dim enough to take on such a shambles of a loans company ... ie, will the Govt be able to sell it on? And surely students will just default on their debts if payments increase? I'm still crossing fingers it will all be written off because it is costing more to run than the lovely old system.

Moominmammacat Wed 03-Jul-13 17:34:50

Well, I think it's all horrifying, as I said at the beginning of this thread in January. But will anyone be dim enough to take on such a shambles of a loans company ... ie, will the Govt be able to sell it on? And surely students will just default on their debts if payments increase? I'm still crossing fingers it will all be written off because it is costing more to run than the lovely old system.

fussychica Wed 03-Jul-13 19:58:40

A friend suggested students go bankrupt but the government are one step ahead and student loans remain and can't be written off.

greyvix Thu 04-Jul-13 17:49:17

I am also horrified about it all- ridiculous fees, ridiculous loans. I cannot understand how it has come to this.

alreadytaken Fri 05-Jul-13 09:15:08

the clock starts ticking when they take out the loan and the interest rates are very high when they are at university, I think they change later. So they graduate (if they graduate) with a big debt. If they earn enough they can pay back without penalty and when they are able to get a bigger mortgage than they need it may be sensible for them to take one out and pay off this debt. That depends on other loan rates at the time.

If your child is likely to earn significant sums of money (Oxbridge graduate, maths graduate from leading university, doctor) and you have savings it may be sensible to use savings to avoid the debt, especially as current interest rates are so low. That does mean you may be less able to fund a house deposit when they need it but if they are earning a lot they can save their own deposit.

Governments often consider options only to rule them out as too difficult. I wouldn't expect the conditions of existing loans to change, however much the Treasury might like to do so. It's not impossible but it it unlikely.

telsa Fri 05-Jul-13 11:49:27

I would put nothing past them, as they prepare to sell of the student loan book for a short term gain. One of the best commentators on all this is Andrew McGettigan. He saw a poorly redacted government report on the pre-2012 £3000 loans and how Rothchilds Investment Banks recommends retrospective raising of interest cap. It is reported on here www.guardian.co.uk/money/2013/jun/13/raise-interest-rate-student-loans-secret-report

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