Student loans - anyone changed their view recently?

[jeanne16]

Following the recent furore over student loans, has anyone changed their view about whether to try to fund their DCs university via a route other than a student loan?

[AndNowItIsSeven]

There would be no logical reason to fund via any other route.

[awishes]

AbdNow - there certainly are cheaper ways ie loans that don't attract compound interest rates of 6.1%

[boys3]

the principal of those loans awishes would however need to be paid off in full; whereas a student loan is written off after 30 years irrespective of the amount still outstanding. Given the base rate I'm not sure how 6% can be justified, however in many respects for the majority of those taking out a student loan the rate of interest is of limited consequence.

[titchy]

I don't know of any commercial loan product that shrugs its shoulders and says 'fine we'll stop your repayments' when someone gets a job paying less than £21k.

But if you can please do tell!

[Abra1d]

If I could afford to pay the loans off I would. 9% extra income tax above £21k seems a lot.

[awishes]

Sorry I just don't get the idea of never paying it off! Just because if it were me I would be desperate to pay it off, I couldn't have it hanging over me.

[FannyFanakapan]

martin lewis explained it very well here

Unless your child is going to be a very high earner, it makes no sense at all.

[titchy]

because if it were me I would be desperate to pay it off,

Then you'd be making a financially stupid decision....

[Abra1d]

Today's news makes me more worried. Fees will have to go up.

[Abra1d]

Today's news makes me more worried. Fees will have to go up.

[AndNowItIsSeven]

Awishes as the payments are fixed to earnings and then the balance written off the interest rate is irrelevant. It makes no difference if you owe £50k or £80k.
It's a graduate tax .

[JoNapot]

The system means that if you are confident of being a high earner you will pass on the loan if you can.

Also there is a disincentive to those with the loan to earn more. There is also an incentive to borrow to your maximum limit if you expect to have the debt written off anyway.

So the money collected will be lower than projected. Who loses? The taxpayer?

[Oldowl]

I just hope in 20+ years time my DC will be earning more than 21k.

This is where Martin Lewis seems to have got it wrong. 30 years ago I was working full time at the Home Office for 7k a year. 24 years ago, post uni, my first teaching job was 11k a year. Wages go up significantly over 30 years, so ex-students will be paying 9% of their wages over 21k (with 6% compound interest) which probably will more than the amount borrowed originally.

I doubt many people will be full time parents in the future. I do not have any friends who have stayed at home for more than two years. Most people aspire to earn over 21k.

[OhYouBadBadKitten]

I worry because it seems the terms of the loan can be changed by the SLC part way through the loan and the student can do nothing about it. Who knows what new rules they may bring in the future about when things have to be paid back or further interest increases? It seems astonishingly unfair.
If we could afford to pay dds we would to save her from this uncertainty of an unknown burden in the future.

[awishes]

I too would pay my children's if I could! Unfortunately I have suffered financially through divorce and can barely contribute at all. This means my child will have £120k of debt plus colossal interest! It is a dreadful debt to start adult working life with

[boys3]

i worry because it seems the terms of the loan can be changed by the SLC part way through the loan and the student can do nothing about it

SLC is just there to administer the system. Decisions are made by parliament. Albeit the government ignored the results of its own consultation on freezing the threshold .

House of Commons library has a useful briefing paper on it researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7653

[OhYouBadBadKitten]

thanks Boys, I'll have a read.

[Lucysky2017]

I have funded the older 3 (fees 1 and 3k) and will fund the twins £9250 each x 3 years and pay their rent etc. I have often been called an utter fool for doing it and I understand why people say that, I really do. However for this family debt is not something we like at all, even my care is only worth £1k as I would not even take out a car loan and I've now paid off the mortgage even. I know it's not a normal debt but it can affect your mortgage situation.

Also both my girls are London lawyers. Pay there is even in 20s likely to be £40k - £100k. People likely to earn that (which I accept is not most graduates) are better off without loans. Also we are all feminists so the women will always work full time for 40 years so we will not be at home keeping house earning pin money for life as so very many women sadly still do.

In comparing rates by the way commercial loans for the one year law course if a law firm does not fund you are 9%. So the 6% is not out of line compared with that. They are both unsecured loans whereas a buy to let loan at 3% say has the security of 25% equity in the house and a house to sell if you don't pay. I don't think 6% or 9% is excessive given the risks of failure to repay.

So if your child is likely to earn a fair bit and you can afford it (all of those of us who pay school fees currently will be able to afford it as £9250 is a bit less than most school fees) just pay it if you are happy in principle with helping a child like that. If you think they won't earn much or women in your family earn very little and just serve men at home then obviously the loan may make sense and the same if they are likely to earn say £15k a year for life.

[OhYouBadBadKitten]

and I think that's one of the rubs, if you can afford school fees then you can afford for your child not to be saddled with debt and that's another life advantage most of us can't manage. I dont begrudge you that Lucy, its the system that feels unfair.

[JoNapot]

And there in Lucy's post is also the reason the loans will bring in far less than anticipated. It stands to reason you will want to avoid being the daftie who pays the maximum interest with no write off.

It will be the poorer risk students who will be on the lender's books.

[AndNowItIsSeven]

Lucy , you realise many sahm are feminists right?

[SonicBoomBoom]

Also there is a disincentive to those with the loan to earn more.

Only if you're an idiot. I have, thankfully, never met anyone who was offered a promotion or new job with a higher salary and said "No thanks, because the Student Loan Company will take 9% of the extra, so I'll forgo the massive pay rise, thank you".

[Lucysky2017]

Yes, plenty of stay at home mothers are feminists. Also I would say most men in the UK are feminists too as all it means is you want equality for men and women and fairness at home. However if you think it very likely girls in your family will work for a few years after graduation and by about 30 be off the career track not really earning much as men tend to provide in your family then it would make sense not to pay for girls at university.

Secondly if wages are likely to be low then might be worth taking the loan.

Thirdly if your child will be working in the family business and you can easily pay them the minimum wage for life (particularly to protect the business from their grasping wife on divorce) but provide them with a home etc then presumably take the loan.

When my daughter's fees were £1k plus rent even the rich seemed to take the loan and stick it in an ISA for 3 years (interest rates were higher) and then pay it straight off (no interest at the start in those days and the interest rate on the loan was tiny). Now interestingly many of the parents in my twins' class this year (all the boys are hopefully off to university in September) are apparently going to pay except one where they have a family thing where the oldest child graduates and then gets a job and funds the next sibling at university (the father funding just the first child) which is a bit weird. They must have big age gaps between the children.

It is not a simple calculation and 40% may never repay. In fact I think if you will be on about £30k for life all you will ever pay back is interest and then after 30 years it is written off.

[OhYouBadBadKitten]

a graduate tax for everyone except the well off. That's worked out well hasn't it.

[JoNapot]

Sonic I know some lucky people who are doing ok financially and don't work extra days offered or do overtime because it would make them move into the next tax band. It's not worth the loss of their free time for lower hourly pay. Ok it's not widespread but neither is it unheard of.

I don't think that they are all idiots!