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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

interest on student loans shouldn't start till the degree is done

47 replies

angelcakerocks · 12/06/2017 13:00

And should be charged at base rate imo. I really think it's appalling that young people are being charged compound interest on the loans before they are even in a position to start paying it off. Also, why is the rate of interest so comparatively high (compared to interest on savings for example)

OP posts:
titchy · 12/06/2017 13:18

Because the rate of interest is based on theoretical wage rises rather than being artificially set by the Bank of England - I guess you're too young to remember 15% interest rates? Inflation has NEVER been anywhere near that high, so although interest rates are very low right now, over a 30 year period I'd rather they used RPI than BoE interest rate.

Agree interest shouldn't be added till after graduation though - although it doesn't actually any difference to the monthly repayments.

Original poster
angelcakerocks · 12/06/2017 13:27

Am not too young sadly titchy Grin
But I still think students are being ripped off with the interest charged and with it starting to accrue straight away in their first year. While no fan of JC at least young people have been put firmly on the political agenda which is a good thing.

OP posts:
bluediamonds · 12/06/2017 13:33

I thought they were interest free!! When did that change?

stuntcamel · 12/06/2017 13:33

It's all right basing it on theoretical wage rises, but they won't start earning properly or getting wage rises until the course is finished, will they?

OneFlewOverTheDodosNest · 12/06/2017 13:46

Interest on student loans is now at 6.1% - that's higher than what you can get on an unsecured loan. It's absolutely disgraceful and profiteering - YANBU OP.

beepbeepimasheep · 12/06/2017 13:50

It's another penalty for those from poorer families who have to borrow more.

dingit · 12/06/2017 13:51

I assumed the high interest charge is to cover all the people that will never pay? ( my dd ( hopefully) starts university this September)

Kursk · 12/06/2017 13:55

I was sold mine as interest free back in 2002.

It's university tax, I owe the same as when I left university, I don't ever expect to pay it back. Especially now I no longer live in the UK, they make it so hard to pay, I doubt I could even if I wanted to.

ThePants999 · 12/06/2017 14:16

Student loans have never been interest free, it's just that the interest was pegged to inflation so it was "free" in real (as opposed to nominal) terms.

Complaining about a 6.1% interest rate is fair enough. Don't see the issue with the timing, though. Whoever thinks it's inappropriate to charge interest for the first few years of the loan, could I have a loan please?

OneFlewOverTheDodosNest · 12/06/2017 14:19

At 6.1% interest only those leaving uni on salaries over £65k will be able to pay off their student loans before they get cancelled at the 30 year cut off. Those earning under £40k won't pay off the initial balance of the loan (excluding interest), and those in between will be paying for 30 years because of the additional interest.

titchy · 12/06/2017 14:22

that's higher than what you can get on an unsecured loan. It's absolutely disgraceful and profiteering

Given that 40% of them won't ever be paid back it's pretty poor profiteering!

Whoever thinks it's inappropriate to charge interest for the first few years of the loan, could I have a loan please?

How many loan providers are happy with no repayments being made for the first four years?

AyeAmarok · 12/06/2017 14:29

It amazes me what a flap some people get into about student loans.

They really aren't that big a deal. They don't impact your life in any meaningful way. They aren't the noose around the neck they're made out to be.

Mulledwine1 · 12/06/2017 14:38

They really aren't that big a deal. They don't impact your life in any meaningful way. They aren't the noose around the neck they're made out to be

Students can leave university with upwards of £50K in debt. How can that not have an impact on your life? It effectively adds about 11% to your marginal tax rate, and that's just tuition fees. Add in living costs and you're looking at massive repayments.

Funny how they manage to fund universities in continental Europe without saddling their young with tens of thousands of debt.

Original poster
angelcakerocks · 12/06/2017 14:45

ayeamarok I just can't understand how you can say they don't impact on your life in any meaningful way Confused What about on a monthly basis forever, when you are paying it back?

OP posts:
Original poster
angelcakerocks · 12/06/2017 14:51

Also, slightly off at a tangent but its hypocritical really of older people to criticise Labour spending plans and young people voting for that, and at the same time expect young people to take out huge loans which they can never pay back

OP posts:
titchy · 12/06/2017 15:03

How can the marginal rate be 11% when the repayments are 9% of £21k?

Not defending loans by the way, just don't like ignorance and misinformation.

PerpetualStudent · 12/06/2017 15:11

I agree with Aye
Student loans function so differently from commercial loans, they are really not comparable.
You only pay them back when you are earning over a certain amount. When not earning, you don't pay. They are a de facto graduate tax, not a debt in the usual sense.

They don't count on credit ratings, and CAB doesn't take them into account when calculating your debt.

I had a career development loan (i.e. a commercial loan) to fund my MA. I was hounded for £400 monthly repayments and eventually had to default, which is still sitting on my credit references and stopping me getting a mortgage.
Like PP, I'm not saying student loans are the best system, but I get sick of the fear-mongering around them.

frenchfancy · 12/06/2017 15:12

Given that the fee cap of £9000 was only introduced in 2012/3 the students paying the full wack are only a couple of years out of university so I don't really think we can know how much of an impact it will have on their lives.

Also the figures of people who don't pay back the full loan include people who pay for 30 years, pay back much more than they borrowed, but because of the interest never actually clear the loan.

AyeAmarok · 12/06/2017 15:21

ayeamarok I just can't understand how you can say they don't impact on your life in any meaningful way confused What about on a monthly basis forever, when you are paying it back?

Because the repayments are such a small part of your overall salary.

If you get your first job after graduation on a 20k salary, you don't pay it back.

If you earn 30k, a 'good' salary for someone graduated a few years, you pay about £65 a month out of your £1900 NET pay. That hardly pushes you into poverty.

I have (huge) student loans. I am a "millennial" (I think? Born in the 80's). My monthly student loan repayments (which are higher than students these days will have, as today's only start above 21k) has not stopped me living, saving, buying property/cars/holidays or anything else.

You (and many, many like you) are massively overreacting.

stuntcamel · 12/06/2017 21:29

Not massively overreacting actually, not when my dc will have over £55,000 debt by the time they finish their degree. Charging interest for the whole three years when you can't even begin to make repayments during that time is rubbing salt into the wound. Especially when you consider that the people who made the decision to implement student loans all got their university education for free.

It is a demoralising millstone around the neck of anyone from a low-income family trying to better their prospects, whose parents can't afford to help in any way.

Yeah, yeah, many people won't have to pay much of it back. What's the point in having student loans in the first place then? Why not just have a different tax code for people who went to university? Then they could pay slightly higher taxes over a period of time, and save all this endless paperwork.

Sofabitch · 12/06/2017 21:43

Add in the new Masters loans and people who are earning 21k re effectively paying 37% tax

RufusTheRenegadeReindeer · 12/06/2017 21:45

Yes i agree angel

Original poster
angelcakerocks · 12/06/2017 22:30

AyeAmarok in the example you've given of someone earning £30 000 it would actually be £91 per month repayment, at current interest rates. I think that's quite a lot.
Also, you said you're paying/paid more than current graduates because your repayments didn't start on earnings over £21K, but presumably your total debt is less anyway as your student loan wouldn't be the £9k p.a. it is now.
I agree with stuntcamel that a graduate tax would be much fairer - then the burden can be shared by everyone who has been to university, so the cost would be much lower overall.

OP posts:
titchy · 12/06/2017 22:31

I agree a graduate tax would be more honest and describes more accurately the current system - but actually all the evidence points to the term 'graduate tax' as a much greater deterrent, particularly amongst those from low income, non-university educated backgrounds.

Masters loans - they're not compulsory you know sofa! They're also capped at £10,000 and repayments start much much earlier (as Masters courses are generally only one year long), so a virtual tax rate of 37% wouldn't be a permanent thing. And when I graduated I was paying over 40% in taxation as a basic rate tax payer so even higher!

titchy · 12/06/2017 22:33

The repayments are 9% of salary above £21k regardless of interest rates. 9% of (£30k - £21k) = £810 which is £67 a month....