Student loan repayments are completely unfair

[Sammy900]

I've thought for ages that student loan repayments are a complete rip off. I'm so glad they are now all going under review.

They were mis-sold at the time as a minor "graduate tax" that you'll barely notice and there weren't any other options available to enable low income households fair access to higher education.

I didn't realise then that this would turn into a lifelong debt, with snowballing interest that makes it impossible to clear.

I'm on the original plan 1 which just goes on and on until I'm 65.

The next plan 1 deal after 2006 then decided that 25 years was a fair term (not 47 years!!). Such a huge difference in what will be paid back.

Any other standard loans have much shorter terms.

It was based on the assumption that you would continue to be a low earner for the rest of your life and not move up the career ladder.

I really think that the government / treasury should look into the fairness of the terms of the original plan 1 loans too not just Plan 2.

I think you can submit your case to your local MP and with the treasury committee if you feel that you are paying back a student loan on unfair terms and now is the time to do so.

I really hope this gains momentum and something can be done about it finally.

What are your thoughts?

The main issue here is are the loans fair and reasonable (terms, expiry, repayments, interest rates, bias, management of them, were they mis-sold, all the other issues raised, etc) and I'm glad that people are questioning that.

People need to look at the presentations/slides etc that were shown to prospective students at University Open Days. There were no warnings about the possibility of interest rates rising, no warnings about the possibility of earnings thresholds not rising, no warnings showing the average amount of interest charged, no figures for APR, etc.

You know all the things that are legally required for any other loan or regulated financial product!

The projections were all showing rising wages, static interest rates, thresholds rising in line with wage inflation etc. The slides showing numbers/proportion of people not paying off their loans didn't mention that most would have paid off most/all of the capital but the graphs showed the loans not being FULLY paid off due to the compound interest etc. The presentations were all about minimising the effect and risks of taking out the loans and nothing at all about the downsides. It was classic mis-selling akin to the mis-selling epidemics of loans, mortgages and endowments of the 1980s! Basically, all about how wonderful the loans were - lots about how they'd eventually be written off etc, nothing at all about how much an above average earner would pay (ie target Uni graduate) over the life of the loan.

We went to several Uni Open days with our son and sat through a few of the financial presentations - they were all the same, so they were using slides/figures centrally produced, presumably by the Student Loan companies or other governmental quango. They weren't individually produced slides/presentations made by each Uni separately.

Add in the mis-representations made in mainstream media by Martin Lewis - the guy who should have been unbiased and giving the pros and cons, but all he ever did was advocate how wonderful the loans were, again, no warnings about risks nor downsides.

Well said and a great point to add, thankyou

I wonder if anyone has a copy of these slides?

They could be provided as evidence to submit to the Treasury

https://committees.parliament.uk/work/9682/student-loans-and-taxation-of-graduates/

Ignoring the actual debate for a moment, I struggle with the logic of saying it was sold as a graduate tax and therefore missold.

It’s exactly like a graduate tax - it’s a percentage of a salary above a threshold that may or may not increase over time, and is payable so long as you earn over that amount. In fact, the only thing that makes it not like a tax is that it eventually gets written off (therefore stopped) after a defined period of time.

If it was just paying down capital at a rate in excess of interest charges such that it gets paid off in a reasonable time frame, it’s not like a tax at all.

I was on plan 1 (post 2006) and have paid it off through salary contributions - that’s nothing like a tax as it as repayment out of my salary for c 8 years and now it’s stopped. If it had been a graduate tax, I’d still be paying it now regardless of how much I’d paid off - which the plan 2 debts feel more like, because of their quantum and interest rates.

@WheretheFishesareFrightening

It's not a graduate tax because it doesn't last the full 30/40 years for everyone. For the highest earners, they pay it off a lot quicker, so pay off a lot less interest too, so they actually end up paying less than someone on a much lower income, but who still earns more than average. A genuine graduate tax would carry on the full length of the term, of 30/40 years, even when the capital/interest had been paid off. It's the fact that some people pay it off that makes it a loan, not a tax.

Exactly - so it’s better than a tax as you might stop paying it. That’s not misselling, in fact it’s making something sound worse than it actually is…

It's better for higher earners and lower earners, but not for higher than average earners which are the typical graduate demographic. Average earners could easily end up paying a lot more than very high earners, which is actually the wrong way around morally and makes it less like a tax. If we wanted a graduate tax, then there should be no link to initial borrowings - it should be a specific length of time, 30/40 years, payable only on earnings levels, not on whether the loan had been "repaid" or not. It's the fact that highest earners end up paying less than average earners which adds to the unfairness.

Haven't read the whole thread. But both my two are on Plan 2. Its annoying that richer families can avoid it completely by paying up front.
The change to the terms where the threshold has not gone up is wrong.
DS works standard PAYE. He gets stung for a chunk when he gets a bonus.
DD is arguably worse off. She works is 3 month blocks. Very well paid whilst working but then she might not work for 2 months.
So she might earn the same gross as a PAYE person over 5 months- but pay more student loan back
Theres no mechanism to even it out in the same way as as the tax allowance does.

The government sets the Bank of England inflation target at 2%.

If that’s what they think inflation should be then the student loans should be this same amount with no write-off/wiping.

Even more sensible would be for there to be no student loans for course fees; students get degrees to get better jobs with better pay and subsequently pay higher amounts of income tax. So universities should be funded out of Income Tax receipts.

@VoiceFromThePit That is totally unsustainable! It’s not been possible since the 1992 expansion of universities. It’s utterly pie in the sky. It’s also asking less well paid people to fund those who will probably earn more than them. We realised a long time ago that this wasn’t on. That’s why those who earn more via a degree education, pay more. It’s the ultimate pay be results scheme. It has faults but we cannot keep borrowing and there’s NO money to pay for universities beyond the £billions paid by students and owed to the government. Currently around £230 billion and growing. We simply cannot do this unless there’s a massive cull of universities. Would you like that?