How can this be right? It isn’t . Martin Lewis on uni costs.

[Dowser]

Watched Martin Lewis tonight as grandson is off to uni in two years.

So...it’s £9000 a year tuition
Then the highest living allowance is presently £8700 per annum

So...if your parents earn over £25k , your maintenance loan is reduced.
Some parents didn’t realise that they were expected to top up to the full amount
One poor lad was attempting to live on £4K . His parents hadn’t realised they were meant to top up

Then there was a young girl who had to leave uni because her mum got a new partner. The students loan went down from full to low and this guy who wasn’t her father, had only been with the mum was expected to pay for someone else’s child. I think there was a shortfall of £5k

Martin Lewis rang up the student loan company and was told it was correct.

He’s looking into it.
I was shocked at that.

Lonicera they can complain but have to remember we are the customer.

Lonicera

I perhaps didn't explain properly, I meant those wanting to know every detail and parenting them round all day.
I don't blame them as they want to know what their investment is going towards.
It shouldn't be like this, they need to learn how to be independant, that wasn't suggesting they shouldn't get a lift and then parent go off and do their own thing.
I'm sure me or dh will accompany our dd, but she'll be on her own we'll be off doing something different.

Of course they do! Do you think companies that buy billions and billions of pounds of assets don't have quants working for them?!

But how can they know? My son does not know what the future holds for him or whether he will ever pay back his student loan.

When I qualified as a nurse 30 years ago I had no idea that my life would follow the path that it has. Had I incurred student loans I would have only paid back 10 years worth and by now my loan would be written off. How can the loan companies know more than we know about ourselves? I understand that they could guesstimate that X% will pay back and Y% will never make any repayments but how can they do anymore than best guess?

I have never had a student loan and could therefore decide to study a degree at the OU for example with a student loan. I am in poor health and the wrong side of 50. I work very part time. I am never going to pay back 1p of a student loan. Does this private loan company just suffer that?

I'm sure me or dh will accompany our dd, but she'll be on her own we'll be off doing something different.

If that's how you choose to do it then that's up to you. Your child will be very much the odd one out though and both of my children were very grateful to be able to discuss and compare the different universities with us. They are deluged with information at these open days and it's difficult for 1 person to remember everything. Often my children would ask if it was at this uni or that one that such and such happens. Obviously your child won't be able to have these conversations with you because you'll be off doing something else.

It is daunting as a student from a quiet home area to be faced with a city to start with imagining themselves living there for the next three years. As weetabix says taking it all in on the day three heads can be better than one. We did not go with DS he went with his older brother who was far more savvy than we would have been. It also helped that older bro. works in the same field DS had chosen to study.

No one size fits all. You really do not want your DC to drop out because they were totally unprepared for the pros and cons of student life. Now that can get expensive.

But how can they know?

They same way life insurance and pensions companies know how much their liabilities are. They don't look at your son, or you, and say well young Pete's got a 2:2 and a nice middle class mum so he'll probably earn £50k a year.

They use lots and lots of data on life expectancy, salaries cut by ethnicity, age, region etc etc etc and work out with a reasonable degree of accuracy how much that pension will cost, or how much that loan book will bring in.

Given enough data it doesn't really matter what short term swings there are, it's reasonably easy to determine the long term pattern. There's a risk sure, but it's not a big one - these aren't sub-prime loans sold under the counter.

titchy DS friend works out in Bermuda making these calculations, it is fascinating the way it is done. He earns an enormous salary.

But how can they know? My son does not know what the future holds for him or whether he will ever pay back his student loan.

They don't know whether you're personally going to have an accident in your car tomorrow. That's why car insurance is impossible to price, and nobody therefore offers it.

They don't know whether your house is going to burn down tomorrow, so when you phone up to ask about house insurance they just say "dunno luv, we can't figure that one out" and put the phone down.

Yes, I understand what you are all saying about how risks are worked out. But it seems quite high risk to me for them to be able to work out what roughly 50% of school leavers are going to be doing for the next 30 years of their lives, given the volatility of the employment market and the many variables that come into play.

I'm not bothered so long as the government are nit underwriting these loans and the massively inflated interest rates.

They're not

Re massively inflated interest rates - what rate do you think you could get on an unsecured loan on the open market?

Re massively inflated interest rates - what rate do you think you could get on an unsecured loan on the open market?

Well given that the highest rate is just over 6% currently yet base rate is what, around 1%, I think that is a high interest rate. That interest is added whilst you are still a student is also awful in my view.

What I really don't understand is how private companies make money if 83% of loans will never be paid back in full. That's a lot of potential revenue that these companies will be writing off, though of course the end dates for the first of these loans are still a long way off so who knows what shit is waiting to hit the fans of future generations when year on year this money doesn't materialise?

What I really don't understand is how private companies make money if 83% of loans will never be paid back in full.

Because they don't pay the full price obviously. They buy £100k of loan liability for £10k.

Not many 18 year olds can get £50k of loan at interest rates less than those charged on credit cards.

I'm not saying loans are good - I hate them on principle. But your arguments against them are weak. If we have a system where students take loans out, the current system is pretty much as good as it could be.

There are better systems other then loans of course.

Because they don't pay the full price obviously. They buy £100k of loan liability for £10k.
Are they the actual figures? Because if so the government is paying out to the student and to the university £50,000 but then selling that for far less? How does that make sense?

Well given that the highest rate is just over 6% currently yet base rate is what, around 1%, I think that is a high interest rate.

Tell us about the place where you can borrow money unsecured for 1%.

No?

Base rate is irrelevant. Base rate is (waves hands, approximates) the rate at which the Bank of England will lend money to major banks, or the rate that major banks will expect if they lend money to the Bank of England. Now 2007 shows us that banks aren't quite the risk-free customers they were once assumed to be, but they're a lot better than private individuals. The differential to base rate is the price for risk.

Student Loans are risky. Unlike with a normal loan where it's paid back if things go normally and the only risk is default, student loans have no guarantee of being repaid even if the borrower makes every payment exactly on time over the entire course of the loan. The price for risk in that is presumably one which quants have agreed is "about right".

You can borrow fifty grand currently for about 3%, if you're a very good customer with a very good credit history and willing to pay it back over about five years. With student loans, anyone can borrow fifty grand, irrespective of past history, future prospects, ability or even intention to repay, and they are charged 3% over for that. That seems reasonable.

If a student thinks they can borrow the university fees commercially for 3% and are happy with the terms, fine: nothing's stopping them.

Because if so the government is paying out to the student and to the university £50,000 but then selling that for far less? How does that make sense?

The alternative a lot of people want is that the government pays out to the student as a non-repayable grant and gets nothing back. In that content, selling the debts for a penny in the pound is still worthwhile, no?

There are better systems other then loans of course.

Indeed. And a graduate tax would be, for most students, exactly the same as the current loan scheme will into their forties or early fifties. The current scheme is basically a graduate tax anyway.

The alternative a lot of people want is that the government pays out to the student as a non-repayable grant and gets nothing back. In that content, selling the debts for a penny in the pound is still worthwhile, no?

But titchy said the loan company buys £100k debt for £10k so the government is loaning an individual student £50k but only getting £5k back? Yet the student will pay back £150k over the life of the loan if the repay in full? Why doesn't the government sell the debt for more or hold the debt themselves? If nothing is paid back they will lise the £5k that they would have sold it for yet if more is paid back then they will be better off than they currently are.

Why doesn't the government sell the debt for more or hold the debt themselves

They sell the debt (at a huge discount) to get it off their books and draw a line under that money. Standard business practice. They probably can't get any more as the buyers won't pay more (I assume it is like an auction process, the buyers will only pay what they think they can profit from).

There was a piece on R4 Moneybox recently about the first type of student loans that have been sold to Eurido, who have bought what are often unenforceable loans because the students who took them out have constantly deferred and paid back little or nothing because they never had to due to being below the earnings threshold. Now Euridio are employing dishonest tactics to try and recover the loans - offering discount settlements to the borrowers without mentioning that people aren't actually legally required to pay anything and often then loans are due to be written off in a couple of years anyway.

If Eurido bought a load of £10k loans for £500 each and a minority pay them £2k, they probably make a profit, which is how they work.

They were talking to a man in his late 40s whose loan will be written off in a couple of years and he still has a loan of about £10k outstanding, but he has never earned enough to pay it back so legally is not required to pay anything but they were trying to trick him into paying about £2-4k.

This is why you really have to understand how the system works, so you can make an informed decision about the money borrowed and stop thinking it about a debt.

But from the lender's (ie the UK taxpayer) point of view, you do have to be concerned about all these loans made that will never be repaid in full.

It is also unfair that people with high but not stellar salaries overpay massively compared to everyone else. In the MSE example linked to in this thread, people who start on £25-30k and experience modest salary rises will only pay a minority of their loan and not pay any interest.

People who start on a high salary, eg £50k and go on to earn a lot, will pay back all their loan quite quickly and pay some interest, but those who start on about £35-40k and receive salary increases take a lot longer to pay off their loan and hence pay much more interest so you don't want to be in this group.

But student loans are like a lot of government policies that there is unfairness in the system. I know it is all very complicated, but sometimes I wonder if they think things through properly.

Like the high income child benefit charge, where two people on £49k keep all their CB but a sole earner on £60k loses all theirs, or the 10p tax fiasco a few years ago, where a tax cut actually raised taxes for people on NMW and slightly above but cut it for higher earners. I managed to work out the impact on me (a middle earner) and DP (earning slightly above NMW) while listening to BBC Moneybox talking about in the car, so either it was deliberate, or they really didn't do the basic maths.

But from the lender's (ie the UK taxpayer) point of view, you do have to be concerned about all these loans made that will never be repaid in full.

And this is the point that I was trying to make.

but those who start on about £35-40k and receive salary increases take a lot longer to pay off their loan and hence pay much more interest so you don't want to be in this group.

Exactly. And I would imagine that most people will be in this category - certainly those who are teachers, nurses, paramedics etc.

It is also unfair that people with high but not stellar salaries overpay massively compared to everyone else.

It’s a tax. I pay more for each visit to the GP than my neighbour, because I earn more than them. I pay more for my children’s education than my neighbour, because I earn more than them. I thought we were mostly on board with that? THis is why some people advocate for a purely insurance based NHS and school vouchers, but those people rarely also advocate for free university tuition.

Once we agree it’s a tax, it’s a pretty rare tax that is perfectly progressive. Most taxes have ranges of income where they don’t increase proportional to income. For most taxes you can work out scenarios where an extra pound of income (or capital, or whatever) results in paying more additional tax than the previous pound. Getting that right is almost impossible, so we live with it.

You’re right about the 10p tax debacle (that was pretty clearly Brown’s personal innumeracy) and the CB debacle: both were examples of tax changes with hard thresholds (and we still feel guilty about our decision to bung a load of money into a pension for a couple of years to keep CB until the children were 18). But in general all taxes have problems like this unless avoiding them is made a primary objective, and pure progression is rarely a primary objective.

nd I would imagine that most people will be in this category - certainly those who are teachers, nurses, paramedics etc.

Teachers start on £35-40k?

Our DC is studying for 4 years in UK and 2 years abroad. DC's debt will be approx £50k and we will have contributed approx £66k. The 2 years abroad DC gets no loan so we pay all maintenance and fees. We make these payments after we've paid tax and we get hit for exchange fees too. DC is working very hard, long hours and can't take on an additional job. It's a freeking nightmare. DH is on a good salary but we have had to downsize, remortgage etc to make these sacrifices. We only have one DC who thankfully graduates this summer.

Weetabix you're looking at the government subsidy as real loan like a mortgage or car loan that the government will give in return for 30 years of repayments.

It's not like that. Government has a budget to spend on universities. In the good old days that entire budget went direct to the universities. Now it goes to the universities via the SLC and students. Who will pay back some of it. Not all. Nowhere near all. That was never ever assumed.

Budget being spent is the same. (More or less...). It doesn't matter whether all, some or none of the loans are repaid. Government expenditure is the same, so selling them at a bargain basement price means it gets something, whereas under the old block grant to universities method of funding it got nothing.

(Not nothing - universities bring long term prosperity and a host of other benefits btw.)

Once we agree it’s a tax, it’s a pretty rare tax that is perfectly progressive

But it's not perfectly progressive, that's my point. People who earn the most pay less than people who earn less than them, because the 'lower' earners (who are still on good salaries, well above average) take longer to pay off their loans and hence pay a lot more interest.

See the table here:

www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/#tips-5

Someone who starts on £40k will pay back a total of £109k, but someone who starts on £35k will pay back more like £180k although I'm not sure I agree with their assumptions about salary increases - those numbers look like monopoly money to me, but who can say what inflation will do over the next 30 years?

Most nurses and teachers probably earn around £23-35k, so won't pay much of their loans off - salaries in the public sector generally don't rise by anywhere near inflation, so need to look a lot further up the list.

that was pretty clearly Brown’s personal innumeracy

Surely the Chancellor doesn't just come up with the budget all by themselves? Anything at all in the public sector doesn't happen without armies of of civil servants and multiple meetings/calculations etc - I wouldn't have thought that something as important as The Budget is just one person and a spreadsheet.

Things would be worked through and checked multiple times and signed off at high level.

Teachers start on £35-40k? hmm

No they don't start on that (well apart from London where yes an NQT does start on 29 - 30,000) but within a few years they will be on that and are likely to spend most of their career in that salary range, unless they move to SLT.

ReflectentMonatomism

I would agree that it's a tax if all students paid X% over 30 years. Then higher earners would pay more. But as it stands the loan can be paid off quicker if you are a high earner and so you pay much less in total than a middle earner who pays continuously for the full 30 years.

That isn't the same as income tax with regards to the treatment of high vs low earners.