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.

The benefit with plan 1 was that the low initial value + low interest rate meant you could actually pay it down - and there was value in clearing it.

I was earning ok in my twenties and paid it off in about six years I think - I paid off the final £2k in cash just to clear it and be done with it. It was about £20k overall.

I remember paying a 51% tax rate over £50k while having limited savings and living in a (series of, terrible) flat share and thinking ‘surely this cannot be right?’. Ten years later I look at my younger colleagues and the tax rate is marginally lower but they can’t pay it off / they’re going to pay back 5x as much, and be paying for 30 years (40 for new starters).

’its only a small amount’ is only true if you earn a fairly low salary, which presumably isn’t the intention if you go to university. And - that ‘only a small amount’ is often a big % of disposable income.

Are you mad? It’s now a 9% tax on their income for their entire working lives!

At £25k you would pay nothing, as that’s the threshold at which payments begin.

What if you earn £40k? £50k? £100k?

If you plan on earning ~minimum wage for your entire career, I’d query the value in the state funding advanced education. It’s not really a sensible investment.

It’s a way of punishing the poor for getting an education. Rich kids will have their parents pay the fees, so it’s making university degrees elitist, as poorer kids can’t afford to be saddled with the repayments for the next 40 years.

Self funded study is the worst option for your son if this is the career path he wishes to take.

He needs to do an advanced apprenticeship, a big employer like RR, JLR, BAE etc will fund your son's education whilst he still earns a wage. He will gain valuable experience on related work placements, earn money and also mix with the right people on a networking level.

I would recommend this route over University all day long, my peers who are in similar roles to myself went to uni, are now saddled with debt and earn less because they started 5 years later than I did.

I owe around £25k on two student loans, £21k under Plan 1 and £4k under Plan 2. I pay off around £125 a month, most of it going to the Plan 2 loan, so this will probably be cleared in about 5 years when you account for the interest which will add about £2k to the total I'll pay.

As for my other loan, I borrowed £16k back in 2006 and it's now grown to £21k. I only pay around £17 a month towards it- this will increase when the Plan 2 loan is paid off, which means that it's not really worth my while paying off the Plan 2 loan early as I'll still pay roughly the same. The Plan 1 will expire in 7 years, and over the next 7 years I'll pay around £10.6k towards my £25k total debt. I don't know exactly how much I've paid already of the original £23k I took out, it's obviously less than the interest.

Paying it all off would put me £15k behind.

Martin Lewis advocates paying it off only if you're expected to pay the whole thing off before expiry, which most people won't. Making extra repayments won't make any difference to the amount most people will pay otherwise.

If I use money I could spend on extra SL repayments to overpay my mortgage, my mortgage payments will go down over the next 25 years. If I overpay my SL, repayments will stay the same until the entire balance is paid.

Worth clarifying again what you repay each month has no correlation to what you have borrowed; the calculation is based on 9% of what you earn above the relevant earnings threshold. So for example, if you are Plan 1 and earning around £33k you would be paying back £60 per month. The more you earn, the more you pay per month.

Which rich kids? I think you're talking about a miniscule proportion of children. I went to an independent school and everyone from there took out a loan.

People say that university access should be restricted, but at least at the moment one of the main problems is lack of alternatives. I looked into apprenticeships with my DD and realistically they are few and far between, at least where we live (which has a number of cities / large towns within commuting distance). Until there are viable alternatives that actually provide interesting career prospects young people will still feel pressure to go to university with all the debt etc. that that entails.

It is a small proportion, but nonetheless it's a fact that some parents buy their kids out of this upfront. Which is why all the posts saying it's basically a graduate tax are wrong. A graduate tax that your family couldn't exempt you from would be fairer.

How long ago was that though.

I was similarly surprised when I went to uni that all of us had loans among the privately educated. Even those who had been to the very expensive boarding schools.

But! The interest rate was so low at the time - 1.5% or something. Less than inflation - you were making money by taking it out.

The same isn’t true today - I’d be interested to know how many of the 2024 university starters from private schools / well off families have loans. I’d wager a lot less.

I worry about what happens down the line for my teen dc.. if they took plan 5 loans, and had a very gradual build up in salary after uni (so that cumulative interest makes the sum owed grow much faster, so no chance of ‘paying it off’ before 40 year term) - then they would be vulnerable to paying a large sum of money every month, until the age of 61, if they did well in their careers over time, and ended up as higher earners in their 40s or 50s.

So they could have 20 years of paying 9 per cent a year on eg £80k (if earning just over £100k, which may not be an outrageous salary in 25 years time). If their salary stayed at that for 20 years (until the age of 61) that would be towards £150k that is being paid in student loan repayments over that period, from the age of 41 to 61. And that assumes their salary doesn’t increase (even by inflation) for the last 20 years. And 30s / early 40s is likely to be the time when they have significant costs (childcare / housing etc).

When I was looking into it in the year before plan 5 was launched, I saw somewhere on the gov website that they estimated that only 12 per cent would pay plan 5 loan off completely, which seems quite different from the figures above?

I know many people in my Uni cohort (early 2000s) who took out the loan to save or use as a house deposit, because interest rates were so low.

If it's to be a graduate tax, then it needs to be applied fairly to anyone who went to university and combined with tax reform (no one should be paying an effective rate of 60% tax) and fee reform - at the moment you can buy your way out of it if you're wealthy enough to pay the fees/living costs upfront.

I'm on plan 1, but first I earnt below the threshold, then I became a housewife.

So for 13 years I paid a total of, I think 90 pounds? I'm not going to be working for years yet, so I reckon I'll have the entire thing wiped.

I didn't plan it that way.

@Stoufer agreed that inflation is a problem re: thresholds.

At £100k on a plan 2 loan you pay £6,500 a year - taking home £5k a month post-tax.

Paying at that rate you would still only just be chipping away at the capital if you had a three year degree with maintenance loan.

The threshold won't stay frozen forever though. If the average salary goes up to £100k in 25 years, the repayment threshold will also be higher.

I've just worked out that in total I'll only ever pay back around £14k out of £23k worth of loans I took out altogether, albeit that's on Plan 1 and Plan 2 loans. This is partly because I failed to meet expectations or my potential and have been happily under-employed for most of my adult life thus far. Paying that £23k upfront at the time of study would have been a waste of £9k.

I think it will be particularly a problem for people in some sectors, eg academia, where there may be larger loans due to extra study, lower starting salaries (eg research posts / contracts) but with the ability for salaries to rise significantly later in careers.

Completely unnecessary, he will be an adult and can/should pay he own way. He will earn well and can afford a monthly small portion of his salary to pay back the loan that enabled him to have that earning potential in the first place. It's a terrible message to give your DS. Top up his maintenance loan to the maximum and buy him random food shops etc.

It's an affordable extra tax and no need to hand-wring at the total amount 'remaining'. It's not as if it's real debt.

Whether it's worth it is another matter. I think more people should be encouraged into direct entry employment training schemes.

When I was young around 10% of people went to University now it’s around 38%. There is no way there are suddenly enough graduate level paying jobs at this level. So there will always be people who did not need to go for their jobs.

Blair’s plan for the expansion of HE had unintended consequences and this is what we are living with now. A Labour government introduced tuition fees which people seem to conveniently forget. The issue is now degrees are far more commonplace and those graduates may very well find themselves in a minimum wage job. My friend didn’t even have A levels and ended up as the highest grade admin in HE, having worked her way up over 35 years . Just before she retired two years ago at 60 she said we don’t even hire the most junior secretary role in my dept without a degree now.

I saw the absolute demise of HE from within. The friends I still have working in it are overall pretty unhappy and four have taken the severance deals offered in the last couple of years. That’s about 160 years of experience gone of the five of us as I also retired early. Some Universities are shedding hundreds of staff and some are rumoured to face closure, not just departments actual institutions.

Yep, that was definitely a thing. And then of course, there's the age thing. Another reason it's not a graduate tax is because it doesn't apply to people who went before a certain date.

Thanks - I know they have the option to vary the terms of the loan (eg they have capped the interest rate when inflation has peaked), but have they also previously amended the threshold to start paying once a loan term has been agreed? Eg, for someone taking out a plan 5 loan in 2024, could they amend the threshold upwards in say 20 years? Or would those terms agreed in 2024 then stand?

Forgive me if I'm wrong but isn't that what happens anyway.? Working people pay a% of their wages to pay the debt. That will continue as long as they earn above the threshold. For a lot of people it won't be fully paid.

I agree with this completely. Unless you NEED a degree for a particular field, I don't think it's worth it any more.

I'm not sure if things have changed @Meadowfinch, or if these things even exist any more, but my DH is an engineer and he got onto an employer supported degree. He did a proper degree course but it was sponsored by an employer who he had to work then for for a number of years post graduation. Saved him a fortune.

For many careers, the apprenticeship route is best now. I am in finance and if someone came to me saying they wanted to be an accountant, I'd tell them to go straight into an apprenticeship from A levels. If you go through it as quickly as you can, you can be fully qualified by 21/22, when all your peers are just coming out of Uni. You have no student debt and will have been earning money and learning on the job, so will be years ahead of those that have gone off to Uni.

You need to just knuckle down and pay it off. Paying less than the monthly interest is ridiculous.