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.

Plan 5 loans are scandalous.

And it’s not a graduate tax and it’s a bad idea to think of them as such, because it distracts from the fact you will pay back many multiples of the amount you borrowed, making them very poor value for money. You’d pay less under commercial loan arrangements.

I see a lot of our juniors at work really struggling with losing a big chunk of salary to student loan, right at the most expensive time of their lives.

This is a pretty weak excuse. My parents ment that I got no additional loan or help from the government.

My parents have always been if you want something go out and earn it. They would pay for much. So was working from 12, McDonald's at 15, and warehouse at 16 in parrellel. As I had to save up for books and pay my bus fare, food, clothes etc to go to college.

Choice by this metric is what job/ course can I take which will fund me to go part time while I work another part time job to fund transport costs and books. ( And I still had a student loan on top)

I have little sympathy for those who got a wedge from the government and had very first world problems of which course would I like to study, and complain about having to pay some of it back.

There always have been many jobs where you can work and train/study at the same time.

But there is no built in debt forgiveness on a commercial loan.

I can't see commercial loan terms or anything like them coming in under labour it would enforce to much personal responsibility.

This is a terrible idea and an awful waste of money. By all means release equity form downsizing but use that as a deposit to help him purchase his first home.

AIBU to say most people have not understood the system or don't have the economic knowhow to judge it?

What are you even on about?? I was responding to the post that said ‘nobody is holding a gun to their head’ - no they are not, but also a lot of kids that age don’t have experience/anyone to advocate for them and just go along with what school recommends.

And in my experience that meant ‘go to uni’ rather than any other option. I am not complaining about the loan by the way, I worked from 15 years old - I also lived at home so I got a minimal loan to help with fees and paid all my own living costs. So no I ‘didn’t get a wedge from the government’ and I also worked to maintain myself. And through working on the side, I actually found out what I wanted to do and could have done it without uni ironically. So I do take issue with you making out young people are stupid when actually they aren’t generally being educated on all the options available.

£70 a month to reply for your student loan?

Please don't worry. They only have to start paying the loan back when they earn enough. The idea is that having a degree enables you to earn more. Martin Lewis suggests seeing it as a graduate tax. The 'debt' isn't counted as a debt when applying for a mortgage. It's a perfectly sensible way of funding a degree but your dc could also look at degree apprenticeships or other pathways to a degree which don't involve taking a student loan.

Not at all!

Regardless of whether or not people think 17 and 18 year olds ought to fully understand what they're signing themselves up to, it's quite clear that many don't.

If you were unable to work then you would still need to make the payments on a loan from a bank. A student loan only takes payments if you are earning enough. Maybe your workplace doesn't pay enough if it's juniors are struggling.

We saved for our kids to pay for their Uni fees but decided that money would be better to put towards a deposit on a house when they get to that stage.
My husband has talked about paying off the kids loans at some point if we could afford to but it just doesn’t make financial sense as that money again would be better to be put towards a deposit or paying off some of their mortgage .
My kids are on plan 2 and I used a calculator to look at what they would be paying back depending on their salary and it was:
Wage. Repayment
£30000. £274 a year
£40000. £1140 a year
£50000. £2043 a year
£60000. £2943 a year
The amount of interest that gets added is scary, but this doesn’t increase the amount they have to pay a year, that is purely based on what they earn and I figure my kids would save more by having a lower mortgage than they would by paying off their student loan.

I don’t know how much those juniors are getting paid, but if it’s say £40K, their repayments are only about £100 per month, so not really onerous.

Yes, just like a car payment or something would. Not the overall debt, just the £70 less you have available each month. If that £70 means you can't afford a mortgage, you can't afford a mortgage

The juniors are registrars in medicine.

Would you be happy with an effective tax rate of 60%, having already lost your child benefit entitlement? And at the current rate, you'd be better off taking a commercial loan out, using it to pay your student loan off, and then declaring yourself bankrupt.

You don't really need to do that there are plenty of access routes ( variable depending on your location) but most larger engineering business offer work based training and degree options.

I really would strongly recommend explore these schemes, as the quality of the education is much higher than pure university course where he won't be much better off interns of employability 4 years and 50+k later.

There are also opportunities to learn some basics before going to uni so get started in CAD and Python/matlab. There are lots of student offers on software which make this affordable. If he goes to interview then this could give him a bit of an edge.

I was plan 1 and paid mine off this year. I borrowed around £12k and it took me 16 years to pay off. Was on a low ish wage for a while and the last year or two earned more so it went down quickly in the end. I was paying £200 per month for the last year, which was a big chunk.

BUT I only had to pay it back because I was earning well. If I'd been too sick to work, I'd not have paid a penny. I think in some ways Martin Lewis is right. You don't really need to worry about the balance. It gets written off eventually. You pay what you can afford (obviously based on the government's calculation of course!). If you stop earning, you don't pay. It really is a graduate tax more than anything.

@aramox1 the current rate of inflation is about 2%. Current interest on student loans (plan 5) is 4.3% (capped) but has been at least 7.5% for most of 2024. A student will indeed pay off far more than they borrowed, and current calculations are that over 60% (with a recent report by UCL stating up to 79%) will pay it off as the threshold for repayment is lower and the extended repayment of 40 years and increased earnings.
Also while it doesn't affect credit rating it is factored in to affordability when applying for a mortgage.
I'm sure most of you would not appreciate a 9% increase of income tax above £25k?
But attending university costs money, and it seems universities are not getting enough - I'm sure we will see a fee increase soon. Plus, for many, even the full maintenance loan does not cover accommodation and expenses and there are calls for that to increase too.
Many families may well have more than one child at uni at the same time.
My DD is heading off to uni this month. Once she did her calculations she realised her dream career wasn't going to be financially viable long term so changed her course from a creative arts one to an academic one, and she will most likely need a masters too. She worries a lot more about her debt than I ever did (I went to university in the US), which is of course sensible.
People may deride the 'college fund' that is so much part of American families financial planning, but I'm amazed at how many people in the UK seem surprised at the cost of university and how to pay for it. Yes things have changed since many on here were at university. But one could have /should have seen this coming. It will be interesting to see how our grandchildren manage. It won't get any cheaper.

Because they add more in interest than you pay off every year. I had to go to uni and get a degree for my job and I am now in the NHS at a decent band however my student loan total is 61k. Not really that easy to ‘just clear’

Im on plan 1, i think the total loan amount was £27k. When I first graduated I was paying off £15 a month, then obviously my wage increased and over 10 years it got to £412 a month at which point it was crippling me (all other expenses rose as we had a family etc too).

It essentially adds an additional 9% to your tax bill so if you're a higher rate tax payer, you're actually paying 49% tax on everything you earn over £50k. Basic rate for everyone else is 20%, for you it's 29%. It's not insignificant.

In the end, I used all of a small inheritance to pay off the remaining £6.5k because interest rates went up so high on it that instead of it being paid off in 14 months, it was going to take another 3 years and I just could face it.

Pay the absolute bare minimum you can get away with. Eventually the problem goes away.

I think we are faced with a dilemma of do we save for them to have a house deposit, or do we pay for uni as we only have a finite amount of cash spare. And if that's the choice, I'd go for house deposit every time.

And that's assuming that parents have any spare cash after paying their own student loan, pension, mortgage and living costs.....

If they’re not thinking it through, they hardly seem bright enough to go through and do well at university!

I work with a lot of new graduates in my industry and they are all aware of the implications.

I was seventeen when I applied via UCAS, and I certainly lacked the life experience to make perhaps the second/third largest financial decision a person can make (after homeownership and marriage). I had quite romanticised notions about HE and was applying during the noughties, pre-financial crisis, when the message was that HE was a passport to the middle-classes.

A friend who didn’t go to university spent three years living at home and saved over 30k. This was a house deposit that meant they could afford to move out. It meant they were not a landlord’s pension for the majority of their twenties. Marriage and children came much earlier than for those who attended university. For this person not going to university was a passport to the middle-classes.

Plan 5 loans are a bit of nightmare.

Repayment threshold £25k which is not far off minimum wage.

High interest rate.

40 year repayment term.

University was sold to students as a way of earning more money when I went - what’s the point if you are then shackled to a working life-long debt which will eat up most of the benefit?

And it is no great leveller - as better off parents will save and pay for their child’s education. Mine are small and they have ISAs for this purpose.

If you earn £25K and on Plan 5 you pay off a tiny amount every month. It’s no big deal.