Student Loan debacle <long, but important>

(52 Posts)
Draylon Wed 25-May-16 16:53:22

The below was cut'n'pasted from my FB, so it's in the public domain.

I had no idea!

"STUDENT LOAN DEBACLE. I'm sure a lot of you are in the same situation as me. Please read and see if you agree with me...

Below is an Open Letter, written to my MP.

Dear Sir,
This is an open letter to you as my Member of Parliament (named). I would greatly value your support and I have no doubt, so would the other thousands of young graduates in my position.

I took out a student loan at the age of eighteen to study Civil Engineering at the University of Nottingham. Unfortunately, I was in the first cohort year of undergraduates who were charged the increased fees of £9,000 per year, from £3,000 – a huge hike in student fees. When I took out the student loan, we were told the loan was at a very low interest, and at the time was around 0.5%.

I was still in the Sixth Form at school, when I agreed to the student loan. I had no experience of loans, credit cards or mortgages. Like all the other thousands of students in the UK, we trusted the Government that the interest rate would remain low - at around 0-0.5%.

I graduated with a huge debt of around £41,000.
We have just learned of the underhand way, the Government has sold our loans to a private company which has caused the interest rate to skyrocket. At no point was I consulted about this, and of course I would never have agreed to this enormous increase in fees.

Now graduates, we feel we have been cheated by a government who encouraged many of us to undertake higher education, despite trebling the cost of attending university.
The current interest rate is now around 3.9%. We were told our loans were around 0.5% interest. I am now lucky enough to own a property, and my mortgage is around 3% - less than my student loan.

From the attached image you will see some months the interest on my student loan is over £180.
The student loan repayment is currently 9% of anything over £21,000. The total interest on my debt between March 2015 and March 2016, is £1828. Below is a simple calculation to see how much I would need to earn, just to cover the interest in a year:

£1828. (total interest last year)
£1828/0.09 =£20311 (In order to find out how much money above the threshold)

£21000 + £20311 = £41311 (total amount needed to be earned to cover interest)

Therefore, just to cover the interest, I would need to be earning over £41,000 a year.
Unless I earn that much, my student loan will increase due to the interest.

I would like to know how many new and recently qualified graduates are earning over £41,000? I am only 22 years old and out of university less than a year.

I have actually set up my own business and have been able to employ two people! As I am employing two people my own salary is lower, which means my student loan will be increasing due to the interest.

I feel we have been mis-sold the loan. A commercial firm would not be allowed to buy loans from another company and then hike the interest rates. This is not what I and thousands of others signed up to. How can it be allowed? How can our loan agreements be altered without our prior knowledge. This is a disgraceful act by a government which encouraged us when at school, to go on to higher education – helped by a government loan with the promise of a low interest repayment scheme. Along with many of my former university colleagues, we have lost our trust in this Government. We have been told that as graduates, we are the future leaders of the country in politics, engineering and commerce.

I trust when our generation reaches parliament, our future government is never so short sighted as to treat their “future leaders” in such an underhand way.

Mr Coaker, I am putting this to you, in the hope you will be able to bring some pressure to bear on the outrageous situation this government has now left me and my generation in, after the hike in interest on our already large student loans and without our prior knowledge. This is not the way to keep our future leaders’ trust……..or votes.

I look forward to hearing from you and I value your support.

Yours Sincerely,

xxxxx"

I am speechless! Is this really what's happened?

Jimjamjoos Wed 25-May-16 17:07:37

They clearly got it wrong at, "We trusted the government" shock.

Would like to know if this is true too.

Becca19962014 Wed 25-May-16 17:11:38

They already done it to those of us who were at uni in the early nineties. My loan was sold to a debt collection firm in 2013 and I wasn't told, neither was anyone else. They sold everything, even allowed the company to set up direct debts to take payment. The rate of interest has changed, the deferment is now by application NOT automatic and they include every penny of benefits except some disability income.

They've already done it to other students and got away with it. No MP will get involved as it is a private debt collection firm, and, yes there is a clause in the contract saying they can sell the loans on.

Jimjamjoos Wed 25-May-16 17:14:29

Actually I remember Martin Lewis talking about this. He said no commercial company would be able to vary the terms and conditions of a loan once it had been taken out, but it had been allowed to happen to student loans shock. Scumbags.

Becca19962014 Wed 25-May-16 17:16:47

Sorry I meant to add I have no idea if they have done this to recent graduates yet but given the treatment those of us who went to uni in the early nineties have had it is naive to expect them not to do the same with loans after that. Somewhere on the many reports at the time about what happened was a layout for it to happen to all student loans -they want their money and if they can get it from students they will sell the loans and get money that way.

I can no longer have a carer because the company the government sold my loan to include that money as income and demanded I gave it to them. I cannot get a loan as my student loan now shows on my credit file as being in 'payment holiday' e.g. Not paid back. Before it didn't show up at all.

Becca19962014 Wed 25-May-16 17:21:39

Yes Martin Lewis was involved at the time. It's all been brushed under th carpet now though.

It makes me really angry and I'm not alone to have been conned into getting my student loan which is now causing me such problems, as a private loan sold by the government, the amount I owe now is nowhere near what those graduating now would owe and I'm not suggesting it is the same, but the feeling of being conned is.

user1463231665 Wed 25-May-16 17:36:57

(Draylon may want to ask MN to remove the name of the MP from the end of the letter (She kept it out at the start)).

titchy Wed 25-May-16 18:11:54

1. The interest rate varies according to earnings. If the letter writer has an interest rate of 3.9% he must be earning over £42k a year.

2. Regardless of the interest rate and amount of outstanding loan the repayments remain the same.

3. Regardless of amount outstanding the loan is wiped out after 30 years or upon death.

4. Plan 2 loans have NOT been sold on. Repayments are collected at source and go to the SLC.

jeanne16 Wed 25-May-16 18:12:04

OP . I assume you have seen t he long thread below, called Graduated 2015. You will see a discussion between some who are very anti the loans (I am one) and others who still think they are fine.

In spite of not thinking they are fine, I do need to point out that there are some errors in your letter which need correcting. An interest rate of 0.5% was never mentioned. You may have thought it was, but I do not believe you will find any supporting documentation.

The loan interest rates have always been very clear except that people have chosen to ignore them. While you are at uni, the loan increases by RPI plus 3%. Thereafter it increases on a sliding scale of up to RPI plus 3%. This has not changed and has nothing to do with the sale of the loan book.

The change is the freezing of the 21K. It is unlikely this will be increased so more students will pay off their debt. As far as I can see, most people will be paying 9% of their salary over 21k for the next 30 years. Dreadful I know!

However I suggest you correct your letter before you send it.

sablepoot Wed 25-May-16 18:25:42

Theres a lot of inaccuracies in this...
The new loans were always set at an interest rate of 3% over RPI for the duration of studies through to the April following graduation. They weren't low initially, in 2012 RPI was about 3% so the loan interest rate started out at about 6%. It is much lower now. Additionally, after the April following graduation it goes down to RPI unless earning more than £21k, and then increases on a sliding scale up to RPI plus 3% at an income of £41k, so has gone down further since April for last autumns graduates on this system earning less than £41k. This was all clearly in the public domain in 2012. The only thing that has changed retrospectively is the threshold at which you begin having to make payments has been frozen at £21k instead of increasing with inflation (which is annoying, but the terms did allow the rules to change, even though it was expected they wouldnt, and this isn't what the poster is complaining about).
17 year olds heading towards university should be able to read and understand the rules, this shouldn't be a surprise to them, and the now 21-22year olds should get their facts straight before complaining.

titchy Wed 25-May-16 18:28:46

OP and others, rather than relying on disgruntled and inaccurate Facebook posts try and do some fact finding of your own. This is quite useful:

http://www.thecompleteuniversityguide.co.uk/student-loan-repayment-calculator

titchy Wed 25-May-16 18:29:11

OP and others, rather than relying on disgruntled and inaccurate Facebook posts try and do some fact finding of your own. This is quite useful:

http://www.thecompleteuniversityguide.co.uk/student-loan-repayment-calculator

jeanne16 Wed 25-May-16 19:59:27

I see the letter, mistakes and all, is now in the Guardian,online.

All of the details of the loan plus interest rates were all freely available right at the start. As always, people are always looking for someone else to blame when they don't do their homework properly.

Ireallydontseewhy Wed 25-May-16 20:28:22

I think though there is a 'deeper truth' in this article and letter, despite the fatual points made against it.
which is that the 17 and 18 year olds did not really understand it, and how much the loan would grow at base plus 3% while they were at university. Many many grown adults were still saying oh but it's interest free, and other misconceptions - the whole 'tone' was that it was still a really good deal even though it was now 9 instead of 3 k per year.
Whether the interest rate matters at all depends on your view. if the terms remain the same for the next 30 yrs, including the write-off at age 51 or whenever, maybe it doesn't,although jeanne is right that no government thinks it is politically possible to raise standard rate tax for anyone else! And it will affect 'affordability' mortgage calcs.
I also think the whole 'don't worry about borrowing because you may never have to pay it back' is conceptually problematic! - not the guidance you usually want to give your 17 yr old. The other problem is that it's so complicated - i didn't realise for instance that if you borrow at all, there is not much if any benefit in not taking the whole lot. Completely different from the usual financial calculations that we make.
On the other hand a graduate tax is not a good alternative because of the possibility of avoiding it by emigration...

Ireallydontseewhy Wed 25-May-16 20:29:28

Factual not fatual. Obviously.

user1463231665 Thu 26-May-16 06:40:11

Ireally, I agree. Even very rich parents were telling my children's contemporaries to get the loan and stick it in an ISA as it was such a good deal. But I have a view that always avoid debt as much as possible. I was almost villified as a fool for ensuring the older 3 children graduated without any debt but I still stand by that decision from psychological as much as financial reasons. It is nice not to have that feeling of debt and I will ensure the younger 2 will graduate debt free. It's not easy even for we women who work full time but I want to do that for the boys. I realise not all mothers earn enough to pay the fees of course.

My solution would be having many fewer teenangers going to university. only 15% went in my day. There are plenty of careers which don't necessarily need a degree. My great uncle was a lawyer and he went into it straight from school with 5 years of articles back in about 1900. My mother was a brilliant prmary school teacher and she did 2 years of residential teacher training from 17 - 19 and I don't think she was a worse primary school teacher for not doing A levels and not having a degree - she was Cert Ed. My great aunt was a nurse and worked her way up to being a nursing sister in charge of a ward and she did that without a degree. We need to look carefully at each career and decide if it is really necessary.

I don't think it will ever be politically acceptable however that we return to free (as in tax payers pay and no loans) tertiary education.

Draylon Thu 26-May-16 07:59:15

user I agree I didn't remove the name second time (oops!) but it's all in the public domain, it's all over FB.

I will have a proper look at everyone's responses later! But one thing did strike me, and that's the 'back in my day, 15%...' which is very true but there were thousands of blue collar jobs, diploma course (like mine, as a radiographer), apprenticeships, traineeships. (And who takes anyone with just A levels these days?). There were techs, polytechs, teacher training colleges, colleges of higher education etc etc.

All gone, more or less, in favour of the university degree. You try getting into any profession without a degree these days!

There'd need to be a paradigm shift that doesn't involve 'apprentice baristas' or 'apprentice child-minders'.... and other such nonsense invented to hide youth unemployment figures.

user1463231665 Thu 26-May-16 08:24:46

Certainly with law as it was possible years ago we are moving back to that possibility. Although it will continue even with the new changes to be hard to get into the best firms with highest pay without a degree:

"Routes to qualifying

There are a number of routes via which you can qualify to practise as a solicitor in England and Wales. Taking a law degree is probably the most straightforward as your studies include everything required for the academic stage of training. If your degree is not in law, you can still become a solicitor, but you will need to realign your studies and also take the Common Professional Examination/Graduate Diploma in law course.

2016 will see the introduction of new legal apprenticeships in England as an alternative to the traditional graduate route to qualification. It is not a requirement to study for a degree as part of the apprenticeship. The Trailblazer Apprenticeship receives a salary and will consist of a blend of on and off the job learning. "

For those women with young children on mumsnet I recommend never giving up full time work. One reason I can ensure my children are debt free through and after university is that I sacrificed my leisure time on the altar of my career and always worked full time with very short maternity leaves and worked continuously without a break from full time work over 30 years. That is the reason the children will graduate debt free and because I chose work which is better paid precisely because it protects children best.

scaryteacher Thu 26-May-16 08:39:49

All the information on the loans has been there for a long time, even when I did my PGCE back in 2000, and took the minimum maintenance loan. I did a lot of research prior to ds starting university in 2014, and came to the conclusion that we would pick up the costs. I wouldn't touch a student loan with a barge pole as an adult, so I wasn't going to put my son in that position.

However, I have friends who tell me it is effectively 'free' money, and that it will be written off. I don't believe that for a moment. If one part of the student loan book has been sold off, then it can happen again.

It took me 4.5 years to clear my small loan post PGCE, so with the larger loans, they will be hanging around a long time.

titchy Thu 26-May-16 08:43:54

Totally agree in principle that we should have fewer going to university (the target is 38% by the way, not 50% as is often quoted). However those of us that went 30 years ago when only 15% went should bear in mind that the majority of those 15% were male.

The were huge inequalities between male and female graduates, and one way of changing this was to make nursing and teaching graduate careers. In one fell swoop this evened the balance (it actually went the other way slightly) and increased participation to around 25%, which seems to be naturally the right sort of amount.

However, looking at the UK skills gaps, and future employment, they are hour glass shaped. Lots of skilled graduates needed at the top, lots of unskilled needed at the bottom. There is no longer very much needed in the middle.

The introduction of higher and degree apprenticeships is one way of getting those in that middle, either now or likely to be in the future, up to the higher bits of that hour glass, whilst increasing the number of graduates, but with the employer paying this time. (Not that I think these apprenticeships are the panacea the government thinks.)

GetAHaircutCarl Thu 26-May-16 09:24:20

The information about the loans was all available prior to borrowing.

The implication that terms changed afterwards is misleading.

However, I do think expecting 17/18 year olds to consider the minutiae of a fairly complex agreement is a bit much. Especially as there is no real other choice.

Do other companies make offers to teenagers to loan tens of thousands of pounds without any collateral?

ShowChin Thu 26-May-16 13:09:30

Martin Lewis has written a response to this (apologies for the clunky looking link but I'm not the most techie person)
http://blog.moneysavingexpert.com/2016/05/26/the-viral-letter-about-mis-sold-student-loans-due-to-retrospective-interest-hikes-is-well-meaning-but-wrong/

scaryteacher Thu 26-May-16 16:15:06

His point is don't worry the taxpayer will pick it up when it isn't repaid. The problem is of course that HMG borrows this money to fund the loans, and is paying interest on the borrowing. They will at some stage, want to get it back, and there is no guarantee that the loans will be wiped, as we have seen from the sale of the older student loan book.

titchy Thu 26-May-16 16:37:28

That's not quite how it works scaryteacher.

Government accounting doesn't work the way you and I do. These loans appear as Government investments. At least the proportion expected to be repaid (the RAB charge) does. So only a small deficit is incurred in funding the SLC upfront - and it's far far far less than they used to pay out to the universities, so they are actually making massive budget savings.

user1463231665 Thu 26-May-16 18:01:06

I just don't like debt. Many people don't and Martin Lewis saying this doesn't comfort me. He is accurate and he is saying most graduates will never pay even the interest so it doesn't matter the debt is still there but it surely psychologically grates on people that it's there and some graduates who become high earning lawyers etc on £100k to £2m a year will certainly have to pay it back. He makes out below that an extra 9% on your tax rate is nothing.For most couples struggling with mortgage and full time child care an extra 9% tax is absolutely massive!

"In many ways the interest is an irrelevance to all but the very highest-earning students (see my Student loans are interest free for most blog). The fact is you repay 9% of everything above £21,000, and you do that for 30 years. Most people won’t pay it off within that time, so it doesn’t matter what you owe, that changes nothing – it is effectively like paying an additional income tax at that rate.

The interest is a red herring as you’re not even clearing the loan before it wipes, so for most you won’t pay it anyway. Most people’s loan statements are in practice an irrelevance and could just be binned and not worried about – just accept you’ll pay 9% above £21,000 salary for 30 years. The amount ‘owed’ is notional, not real.

I know this is confusing. But the amount left when the debt wipes isn’t an issue for the individual, and shouldn’t scare anyone off university. It’s an issue for the taxpayer who has to fund the gap. If you’re finding this a little confusing, please do read Student Loans Mythbusting where I explain it in detail."

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