Student loans to hit 12%

[GreenLunchBox]

www.bbc.com/news/education-61088025

It always boggles my mind how nobody really cares about the student loans situation, writing it off as a 'graduate tax'.

At 12% interest a £50k loan becomes £100k after 6 years then £200k after another 6.

"But you don't have to pay it all off.. "
What if you have aspirations to getting a high- paid job?

Honestly, they are trying their hardest to widen the gap between rich and poor. If we still had access to studying in the EU I would encourage my kids to look into it.

I remember when they scrapped student grants and introduced loans and they said fees would only be £1k per year and loans would basically be interest free just linked to inflation. Ha. So much for promises eh. It’s shocking.

That said I don’t see why the taxpayer should fund someone to study english/art/history either, as used to happen. I think there should be far fewer university places and that degrees useful to society (engineering, medicine etc) should be free and those that are basically a hobby should be paid for by the student. 🤷‍♀️

I like the guy and his work, but I think he dropped the ball on this. I've seen lots of people tagging him on Twitter asking him to do a new post on this

What difference do you think it will make to people?
The monthly amount they pay back will still be the same.

@cakeorwine

From the BBC report:

""The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025," the IFS said."

[quote VeniVidiWeeWee]@cakeorwine

From the BBC report:

""The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025," the IFS said."[/quote]
Yes - but the interest rate on loans is RPI plus (up to 3%)

So if the RPI was 0%, the interest rate could be up to 3%

@PinkPlantCase said:

"Because of the ghastly interest rates it has not possible for me to pay off my student loan. I think I’d need to earn atleast 75k every year for the next 25 years or something like that."

No, you don't even need to pay off your student loan.

"You stop owing either when you've cleared the debt, or when 30 years (from the April after graduation) have passed, whichever comes first."

Source: Martin Lewis

If you still haven't repaid your loan 30 years afterwards, it's written off by the Government.

Thing is, if the amount you pay back doesn’t change - because it’s still 9% over whatever threshold your plan is and its still written off over the same period of time (25/30/35/at retirement depending on plan)…so why does the value of the loan matter?

Why should the interest rate be anything but inflation?

Unless for some reason you’re looking to sell this tranch of student loans…so you need them looking attractively fat with a juicy interest rate.

It’s window dressing for sale isn’t it?

Exactly - the actual amount you pay back every month won't change because of the interest rates. As that's calculated differently.

How much you pay back in total - I guess that depends on your earnings. The amount you owe will vary with the interest rates, but after 30 years, you stop paying money back.

Why should the interest rate be anything but inflation

Why not linked to wage growth instead?

@cakeorwine

I like the guy and his work, but I think he dropped the ball on this. I've seen lots of people tagging him on Twitter asking him to do a new post on this

What difference do you think it will make to people?
The monthly amount they pay back will still be the same.

What happens if you have ambitions to be a doctor or lawyer or actuary? If your salary means you most likely will pay it back then the loan is prohibitory and likely not worth doing the degree. The amount doubles every few years.

Have you even looked at this thread?: twitter.com/Gritty20202/status/1513877177833566222?t=cKPdUWDtyNIheK_IkTNPsg&s=19

If you still haven't repaid your loan 30 years afterwards, it's written off by the Government.

This isn’t true for all plans.

If your plan 1 (1998 to 2005 starters) then you pay 9% of everything you earn over 20k (ish, it’s gone up to 20,300 I think this year) for ever - until it’s paid off or you retire.

Of course you have a lower interest rate, but if you worked in lower paid jobs/had a 10 year career break to raise children and have then sat at around 30k then it’s quite feasible you still lots to pay - because even though you only pay it back when you earn, the interest gets added each year regardless.

Thing is, if the amount you pay back doesn’t change - because it’s still 9% over whatever threshold your plan is and its still written off over the same period of time (25/30/35/at retirement depending on plan)…so why does the value of the loan matter

I suppose - if you are a high earner, you could have payed it back after say 25 years.

But now, with higher interest rates, you would be paying it back after 30 years.

So in that case, you would pay back more than you would have done if there were lower interest rates.

@cakeorwine

Fair enough. I just rely upon expert views. You obviously know better than the Institute for Fiscal Studies.

[quote VeniVidiWeeWee]@cakeorwine

Fair enough. I just rely upon expert views. You obviously know better than the Institute for Fiscal Studies.[/quote]
Inflation can be 0%

The Government website on student loans says that the interest rate is RPI plus up to 3%

The interest rate can be between 0% and 3% if inflation is 0% . Because of the words 'up to'

So it's not knowing better than the IFS. It's just reading the Government website on student loans. Of course there is a chance that's wrong

www.gov.uk/repaying-your-student-loan/what-you-pay

Martin Lewis has been misunderstood here. This is what he said about interest on these student loans:

"Being charged interest isn't the same as needing to repay it. In practical terms for lots of graduates, especially those who never become high earners, they'll never end up repaying any interest, so it's meaningless."

Only those earning £55,000, £60,000 and more WILL fully repay their student loans. It won't be written off for them.

Everyone else, which is most people, NEVER repay their loans in full or come close to doing so. The UK Government simply writes the remainder of the loan off for them.

People get too hung up on the interest rate whilst forgetting the majority of loans is written off.

Since repayments are taken off you in income tax, student loans ARE a tax. Not a loan. As Martin Lewis said, "a student loan is the 'best' form of debt you'll ever get. The interest is relatively low and crucially you only need to repay it if you earn enough."

Honestly, they are trying their hardest to widen the gap between rich and poor.

How does it widen the gap between rich and poor?

Surely only very high earners (i.e. the rich) will pay it back. The rest will never pay it back so it shouldn't matter what the interest rate is?

What happens if you have ambitions to be a doctor or lawyer or actuary? If your salary means you most likely will pay it back then the loan is prohibitory and likely not worth doing the degree. The amount doubles every few years

The interest rate varies though.

If you are going to oay it back and then the interest rate makes the value of the loan increase, then it's going to end up with you not paying it back but just paying 9% of your pay over £20k back for 30 years.

If you end up with a very good salary, is that 9% of your pay worth it? Or too much?

@MidnightMeltdown

Honestly, they are trying their hardest to widen the gap between rich and poor.

How does it widen the gap between rich and poor?

Surely only very high earners (i.e. the rich) will pay it back. The rest will never pay it back so it shouldn't matter what the interest rate is?

Very highest earners will pay it back. If a £50k loan is £250k by the time it's paid back by a council house kid and their rich kid colleagues didn't have to take put a loan in the first place, how hard is it to understand that the gap between rich and poor is widening?

Very highest earners will pay it back. If a £50k loan is £250k by the time it's paid back by a council house kid and their rich kid colleagues didn't have to take put a loan in the first place, how hard is it to understand that the gap between rich and poor is widening

Do you think that the 'council house kid' will end up paying back £250K though in their lifetime?

How much money would they need to be earning to pay that back?

The IFS article is here

ifs.org.uk/publications/16024

Interesting discussion on how they set the interest rate and this little clause

"In fact, there is a little-known legislative provision that was meant to avoid precisely this situation. By law, student loan interest is not allowed to rise above interest rates “prevailing on the market”. Roughly speaking, the Department for Education (DfE) interprets this as requiring a cap on student loan interest at the average interest rate on unsecured commercial loans (the ‘Prevailing Market Rate’).[2] The latest Prevailing Market Rate for February 2022 is 6.0%"

That said I don’t see why the taxpayer should fund someone to study english/art/history either, as used to happen.

Yeah, who needs to study history.

@cakeorwine

Very highest earners will pay it back. If a £50k loan is £250k by the time it's paid back by a council house kid and their rich kid colleagues didn't have to take put a loan in the first place, how hard is it to understand that the gap between rich and poor is widening

Do you think that the 'council house kid' will end up paying back £250K though in their lifetime?

How much money would they need to be earning to pay that back?

If the loan was originally £50k, £100k is too much to pay back in my opinion

This is the key bit of it

However, the impact of this on actual repayments might be quite limited, as most graduates from the 2012 to 2022 university entry cohorts are unlikely to ever clear their loan balances (whether or not the interest cap is implemented with a delay). Even the minority of mostly high-earning students who will fully pay off their loans will typically only be affected in their late 40s or early 50s. Only very few graduates’ budgets will be impacted in the next few years.

A different issue is probably more important. The ‘student loans interest rollercoaster’ may lead current and prospective borrowers who do not fully understand the highly complex student loans system to make decisions that are not in their best interest.[5] Current borrowers may spend large sums on paying back their student loans early to avoid sky-high interest rates, unaware that they will be compensated by lower interest rates later or even that their loans will be written off with no adverse consequences after 30 years. Some prospective students may be put off from going to university altogether.

If the loan was originally £50k, £100k is too much to pay back in my opinion

It's unlikely that most people will pay back £50k, let alone £100 k

Somebody earning £28,000 is paying back £11 / month = £132 a year for 30 years.

That's about £4000 over 30 years and it gets written off

@TheAbbotOfUnreason

That said I don’t see why the taxpayer should fund someone to study english/art/history either, as used to happen.

Yeah, who needs to study history.

Aren't the creative industries in the UK really important? I've got 2 creative degrees - without them I wouldn't be earning half as much or paying higher rate of income tax. I'm not against a 'golden hello' to encourage suitable student to study shortage subjects but the arts are massively important to the UK economy and wellbeing.

@cakeorwine

If the loan was originally £50k, £100k is too much to pay back in my opinion

It's unlikely that most people will pay back £50k, let alone £100 k

Somebody earning £28,000 is paying back £11 / month = £132 a year for 30 years.

That's about £4000 over 30 years and it gets written off

No offence but my kids aren't going to uni to earn £28k 🙄

My friend's daughter is at Leeds uni in her second year and has not met any of her cohort as everything has been online