To say people don't realise the trap they're getting in with student loans

[septemberbaby7]

I graduated 10 years ago and I've been repaying from my salary ever since. But due to interest rates I now owe more than I did 10 years ago!

I am one of the 'lucky' ones, as I am on Plan 1 which is wiped after 25 years and my tuition fees were still approx £3k rather than £9k. The newer plans are not wiped for either 30 or 40 years.

I pg approx £70 a month which is less than the interest added. I have accepted this will be an additional tax I'll pay until my 25 years is up, as it will be wiped before paid off. Maybe if the interest was lower I would have had a chance of paying it off but no chance as it is.

I went to university as it seemed the natural progression and I wasn't sure what to do with my life. But I don't think it helped me get a job - I did an additional course after uni to get into my chosen career and a degree was not required.

At 18 you're basically signing up for a lifetime (in your working life anyway) of an additional tax when you've only just entered adulthood.

I am split on this. My school year were 18 in 1987 and one person went to uni (it was almost free then) out of 242! So to my going is a choice you walk into with the knowledge that you get a loan and like any loan you have to pay it off.
However, the system was set up when having a degree would lead, on average, to a much better paid job over the course of a working life. I'm not sure that's the case, given just how many go to uni now.
when I had a proper job in the naughties, it used to shock me how many graduates we had for interview with an insurance company who had degrees in things like dance, French literature, history great things to study but limiting in terms of actual career. I think we need to have more vocational post 18 courses, but not tied to one sector or generic business studies....

Unfortunately @aramox1 most people don’t understand inflation/compounding. Martin Lewis explains it very well. Most people can only conceptualise simple interest. But inflation always also compounds. The current Plan 5 loans increase in line with a proxy for inflation so in theory students only ever owe the same value as what you they borrowed. But if the absolute amount is higher many people can’t understand this.
Schools/teachers/GCSEs etc etc have a lot to answer for: the general population does not understand money or economics.

I think you have misunderstood the system. It’s based on “affordability”. The person earning £30k can’t “afford” to pay back approx £9k per year so they end up spreading their debt over many more years and so they incur many years of interest. If you took out a 50 year mortgage you would pay back - in absolute terms - a lot more than someone who took out a 10 year mortgage, but you would both live in the same property.
In fact, low earners are fine in this system as ultimately their debt is cancelled before they repay.
It’s the people in the middle/upper levels who will repay their entire loan with lots of interest who are stuffed. And these people should really consider whether their degree is worth it - do they really earn more as a result? And/or, their parents should accelerate their inheritance (if they have one) and help them by repaying the loan early.
The govt is helping people on low incomes “afford” a university education by lending them the money on favourable terms and ultimately (possibly) cancelling the remaining debt after 30/40years (note that other countries which have student loans such as the US do not cancel students debts - you have to pay back every penny you’ve borrowed). Also in the U.K. mortgage lenders are not allowed to take into account student loans when determining how much you can borrow for a mortgage. It really is a good deal if and it’s a big if you think students should pay for their own university education. But and it’s a big but in lots of countries the majority of university students do not live away from home; they go to their local university and they live at home. Living away from home is very expensive. The U.K. needs to move away from this model of university if it’s going to be available to 50% of the population. If people in employment want to work from home - and many do - then so should students.
We should also remember that most people don’t go to university. Any financing of university (including the funding of those student debts that never get repaid) is also paid by people who don’t get 3 years of fun/partying/studying but pay via their taxes for those who do. We have to consider: is that fair?

But why should the taxpayer subsidise a £11.1k “maintenance” loan for an 18-21 yr old to live away from home in an expensive flat and party? I think more people are going to start to this. It’s unsustainable. Most taxpayers don’t go to university and don’t get this subsidy. They live at home and work until they can afford to move out. In most European countries, students live at home and go to their local university. Perhaps if the govt didn’t provide and subsidise maintenance loans, they could afford to pay for the tuition. Students and their families could then decide whether to go to their local uni or pay for boarding at a more distant uni. We need to detach tuition (which could well be done remotely or partly remotely) from accommodation/living costs.

This is not strictly true. It’s a judgement call based on what you expect your child to be earning and, of course, your own personal financial situation. Martin Lewis is very good on this and I urge any parents reading this and uncertain, to read his blog.
it also depends which version of the student loan plans your student children have, as some of the older ones have very high rates of interest.
if you have lots of money, you should pay your children’s loans, if you don’t, or you expect your children to never earn enough to repay the loans, then you shouldn’t.
Note, that paying student fees annually falls outside inheritance tax, whereas a lump sum as a deposit could fall into IHT if you die prematurely (take your own tax advice!).

If you’re paying back over 40 years, you have a plan 5 loan and the interest accrues at RPI which is a proxy for inflation so the amount you owe just increases in line with prices (approximately). Why does almost no one understand this???? It is not a good deal or a “crappy” deal: it’s an inflation neutral deal. You can pay today at today’s prices or pay in the future at the future equivalent of today’s prices.
Maths teaching in this country has failed …

No no no! The lowest earners don’t repay the loan so they are not the worst off.

You mean the “absolute” cost (ie the cumulative total of what you repay) varies depending on how much you earn (not the “real” cost). But this is simply a function of the number of years the loan is outstanding.

The plan 5 loans accrue at RPI which is a proxy for inflation. The “value” of the loan therefore stays constant in real terms (approximately).

It is staggering how many people on this thread don’t understand financial maths, especially the time value of money.

I urge everyone please to read Martin Lewis on this subject as he explains brilliantly how the different loans work. Perhaps @mumsnet you could invite him on for a live chat.

Sadly it seems that most people don’t understand student loans! I wonder if the politicians who introduced them and keep tweaking them understand them either.

@north51 Also in the U.K. mortgage lenders are not allowed to take into account student loans when determining how much you can borrow for a mortgage.

They absolutely can and do.
They can’t automatically reject an applicant based on student loan debt total but they do reduce borrowing amounts due to how the loan repayments affect affordability.

www.moneysavingexpert.com/mortgages/student-loan-mortgage-impact/#:~:text=While%20a%20mortgage%20lender%20might,£1%2C000%20or%20£100%2C000.

I have a Plan 1 loan and have probably paid less than £200 of it back over the years 🤷‍♀️

I'm autistic (diagnosed after graduation) and after two work-related breakdowns, I will never be able to work full time again. Mine will be written off in 2036.

I owed 9k when I graduated, last time I looked the amount had nearly doubled 😂

You should have a chat with our juniors at work and tell them hundreds of pounds a month out of their salary when they are paying for childcare and mortgages, and an effective tax rate of 60% is affordable.

And when it comes to mortgages, we always tell people to overpay. Overpaying your student loan if you expect to remain in half decent employment is also sensible.

All of these things are generally lifestyle choices.

This is an adult chose to go to uni, and adult who chose the mortgage, an adult chose to have children. Wah wah wah.

I’d also like to know how many people on here had salary rises in line with inflation over the past few years…..

I didn’t say it was “affordable”, I said it was inflation neutral.

Borrowing money and being able to pay it back in an inflation neutral way is actually a good deal. But if you don’t value what you spent the money on then I can see you would complain about it.

When loans were introduced, the justification was that those with degrees would earn more. Perhaps that is no longer the case and therefore your colleagues wish they hadn’t borrowed the money? But who else do they think should pay instead - those who don’t go to university?

It is a good question: is university worth it? A related question is: should students really be borrowing money to live away from home? This aspect of university in the U.K. - which is not as common in Europe - is what makes a U.K. university education particularly expensive. Perhaps this model needs to change.

And when it comes to mortgages, we always tell people to overpay. Overpaying your student loan if you expect to remain in half decent employment is also sensible.

That depends on how much they're willing to overpay so for example if someone with £45K loans earns £60K and they make the minimal student loan repayment of £245 per month, they pay it off after 17 years. If they pay another £200 they pay it off after ten years.

For someone on an average UK salary of £34K they pay £50 a month and would never pay if off. If they pay another £200 they'd pay if off after 16 years, but £250 is a big chunk of an average take home pay, so that £200 could be used for other things that are more beneficial (for some people).

Also, with a mortgage, you're adding equity to your asset, which will make things easier if you need to remortgage and be good if you want to downsize.

Overpaying a student loan is unlikely to be sensible - individuals need to look at their personal loan plan, current and likely figure salary and then decide. It's a graduate tax not a loan, the gov of the time were just too cowardly to call it a tax.

But you might have wrongly overpaid and be owed money - check this out if you have a student loan you are currently repaying:

www.moneysavingexpert.com/news/2023/10/student-loans-plan-overpaid/

I think there is more nuance here than is being recognised as to trying to predict whether it’s worth overpaying or not.

There are very few careers where you can reliabily predict lifetime earnings. you might have a good chance of always earning well as an engineer or finance but you might find yourself redundant or experiencing burnout or moving across the country with your partner in an area that has less well paid jobs and taking a part time or lower skilled job and wishing you’d kept that £200 extra per month in a savings account.

One of my DSC is ND and benefitted hugely by going to uni. They matured about 10 years in the 3 years of studying because they learned social, organisation and communication skills that were (very!) lacking before they went. They graduated 15 years ago and haven’t paid anything back, and never will, because they’re always going to be on a low salary. It was absolutely worth every penny of them going to university even if they are not earning much. Not every degree is about being a high flyer!

I think it’s a fair system as you only pay back in proportion to your salary. Another of our DC is now on a reasonable salary in a professional job but is unlikely to pay their student loan off, even after 30 years, because their training takes many years and the job isn’t paid well at first.

My husband has a plan 1 student loan (originally approx £27k) which we didn't make any real dent to for the first 4ish years after it started to be due to be paid off, because of low earnings, then he started earning enough to start paying it off slowly and a few years ago I worked out that he was now earning enough that it is very likely he will pay it off before it is wiped after 25 years. We have been trying to pay it off faster since then so as to minimise the interest we end up paying on top (really really sucks that the interest rate has gone up to 6.5%, it's going up by about £50 a month). We are likely to pay it off within the next 4 years (so it will have taken us about 16 years to pay it off). I wish we could have started paying it off sooner knowing now that it will get paid off. His job does require a degree and for us it has been worth it.

What is interesting is that he changed job recently and his pay has gone up again, but SL are actually asking for less money per month from him... so they have asked for around £210 a month in the past (actually more than that iirc) but now with more pay they 'only' want around £150... which makes it seem to me that they are purposefully trying to draw out his repayment to make as much interest off of it as possible because they can also see it is very likely he will pay it off in the next 13 years before it is wiped...

I don't know if I would encourage my children to go to Uni in the UK with how fees and loans are now, my husband was 'lucky' it was only £3k fees a year (he did 3 years + a sandwich year) and he got full maintenance etc. I hate having the loans hanging over our heads so cannot fathom having what would probably be at least twice as much and having to pay for 40 years! I'm glad I decided against going to Uni in the end (though I did apply and did get accepted, I don't think Egyptology would have done me much good in my life).

My hope is they get to study in a country with free Uni (though they have a good 10+ years until they are old enough anyway, so who knows what the options will be by then...).

She was already buying a house.

I wonder how on earth they calculate whether the government will get enough money back.

The issue I have is that only one option was presented to young people - that in order to get a good job, you need to go to university and pay for it via student loans.

I would advise anyone to think of all their options including going to Europe ( harder now but still possible) and getting an EU degree then try and get funding for a post grad back in the UK from your EU university.

It is a horrendous amount to have hanging over you at a young age when you are competing in a job market where Scottish and international graduates don't carry the same debt.

I know this is an old thread but just to lyk there's a petition re the huge interest rate on the mn petitions site, worth a sign and share widely. Expats can sign it too.
I don't particularly like the wording on the petition but at least whoever set it up had the oooomph to do so. It's the signatures that are important