To not class student loan as ‘real debt’

[Mamamamamm]

I read a story recently of someone saying about the interest on student loans and that they went up to £40k a year and it meant more interest was being added on to their student loans so they were no closer to paying it off. They said they had sat their children down and said that they should really think about if they really wanted to go to university because of the amount of debt.

Now, let’s forget about the principle of it - that it costs so much yet you’re training so you can contribute to society etc. But , you only pay the monthly payments once you’re earning over a certain amount . The amount you pay also depends on what you earn. So for example , I am on just under £30k so pay £7 per month , I’m due a promotion that will take me to £40k and it will go up to £86 per month -but , I’ll be getting an extra £500 per month in my take home so it won’t affect me really as it’s just like tax , NI - it’s going before you get your take home and nothing you can do. So each time you earn more, yes it’s taking more but it’s not going to leave you short ?? It’s also something that is written off after 30 years so you’ll never pay it off anyway and won’t have to pay it if you lose your job , payment will reduce if you take a lower paid job etc .

Yes I’m sure it’s annoying to see that balance not really going down but it’s not something that affects your credit score . Am I being naive here ? Surely it’s not a reason to deter your children from going to uni ? It’s like saying don’t earn more because you’ll pay more tax ?

Genuinely don’t get it , please feel free to educate me if this is a really naive view !

I have the same view. Haven't really checked my balance since 2021, no idea how much interest I am being charged and what my total amount owed is. What I do know, however, is that I doubled my pre-degree salary in the first 9 months after graduation.

I very much treated it as debt and cleared it early. But not before I’d got on the property ladder and achieved a couple of other financial goals.

I agree with you. But I am on plan 1 and it doesn't stop me being peed off that mat leave and part time work has wiped out anything I have paid off so I owe more than I borrowed, 19 years after I graduated. It feels like a bit will come off my pay until I retire.

You're right in that it doesn't affect your credit score but you do have to put the monthly payments down on mortgage applications as expenditure.

Exactly this! I checked mine a while back and it was a crazy figure , I’m sure something like £50,000 but I could be wrong … I don’t think of myself as being in £50,000 worth of debt. I would never , ever pay off more just to bring that balance down - they can take my payments for 30 years and then that’s that!

I agree with you, I have actually gone back to university in my 40’s so I’m racking up a student loan as we speak.

I will be treating it as a tax rather than a debt, I’ll likely never pay it off so there is just no point in me worrying about it whilst it grows in the background.

The latest plans are very different, with longer payment terms and higher interest rates. I, like you, pay a few quid here and there, but my children will be liable for hundreds at a similar paygrade. So yes, it's just money coming out of their pay cheque like tax, but in practice it means a) much less usable income each month, so they can afford less and save less, and b) they won't be able to access mortgages because their disposable income is so much lower due to the more expensive student loans.

As many people have pointed out, it will increase the divide between students whose parents could pay off the loans/give them the money so they never needed them - they will immediately have hundreds more per month to enjoy their lives, plus will be able to afford better homes, and much sooner - and those who come from less wealthy backgrounds. Plus people like teachers will be hit the hardest - earning decent wages so they're paying loans back, but not so much that they won't be losing loads and thus take a huge hit on their QoL.

I don't think anyone believes the country can give free money away in the quantities of students we now have, but this current system is really punishingly shit for anyone who doesn't have very comfortable parents.

Yes but some people either don’t understand or do but just resent the idea of paying off something each month they historically wouldn’t have to. It is debt at the end of the day, just a debt with different rules to the norm.

My daughter has decided not to go to university because of the student loan repayments. She’s not the only one of her friends to not go.

Firstly current student loss are written off 40 years later, not 30. A decade if quite a significant difference.

At the end of the day the economics don’t make sense any more, fees are not £3k anymore and taking a £30k loan on fees alone, often double to include the maintenance loan, just to earn £15k over the minimum wage doesn’t stack up mathematically.

Call it what you like, but the repayments feel very real!!!

But even at 15k extra salary (assuming no pay increase or inflation), it's additional 450k income over 30 years Vs 26,5k in loan repayments over the same period. I'd say mathematically it very much stacks up.

If it never gets paid off, then you're correct, it's effectively just a tax. Maybe it is a fairer way to tax higher education than through general taxation though? But it's only worthwhile if your degree is going to get you a better salary than you would have got without it. For many people that isn't the case. And many others do plenty well career wise without a degree.

And there's also several different loan plans been in place over the years, the latest one is the harshest of all. Now someone earning 40k will pay £112 a month, for 40 years - £54k total. It may not affect your credit score, but I believe mortgage lenders factor it in when calculating affordability.

The whole idea though these days is about keeping the plebs in debt, in a constant hand to mouth financial situation, student loans are just the first rung on the ladder to condition youngsters into that mentality - constant and perpetual debt, paying for everything on a rental model, month by month and never owning anything (whether it's software or a car, or anything else). If nothing else, student loans are a psychological millstone. You clearly don't know any different, so their plan is working.

Signing up 17 year olds to a higher education that costs them a small fortune that they'll likely be paying for until their retirement is abhorrent in my opinion. I'm amazed no one's raised it as a miss selling scandal yet, because it's arguably the worst, and it's state sponsored.

It affects the affordability when being evaluated fir a mortgage. And who wants to end up paying at least twice their original loan, it doesn’t matter that it’s repaid over X amount of years, that’s still money you are paying out. Far better to pay it off early like you would a mortgage if you could.

I have a loan from 1999, and I have paid off about £50 in total.
I have no idea what the figures are now.

It's a tax for people who don't understand maths. It's rigged to make you think that because it's not called 'interest' it doesn't have exactly the same outcome. It's just semantics.

The amount you pay according to the system basically means you payments dont reduce the capital so the next year it's even higher. But if you were to put in that shortfall plus a little and do that from as soon as you're on a position to do so you can bring it down or completely pay ot off and won't have those repayments eroding your borrowing power or making life that much harder down the track when you have increased expenses like children.

“I’m due a promotion that will take me to £40k and it will go up to £86 per month -but , I’ll be getting an extra £500 per month in my take home”

That is a huge amount of your additional earnings.

Only because if you dont, you are lying about how much money you are getting. It is basically treated exactly as a tax would be, the loan itself is not considered in a mortgage decision at all.

For people who earn a lot of money when they graduate, it’s a weird loan (but it’s a loan nevertheless because they’ll pay it off). These people benefit from paying it off quickly, as they pay less interest overall if they do.

For people who don’t earn enough to pay it off, it’s a tax which is payable for 30 years (or whatever the term is now).

I’m on plan 1 and agree it doesn’t feel like ‘real’ debt and I will pay mine off in the next few years. But plan 2 is very different especially if you have a decent salary as the interest actually is higher if you earn more and people can end up paying back far far more than they borrowed.

And it’s clearly not a tax as the wealthy families can avoid loans completely. And poorer families often have to borrow more as there are no longer grants, just bigger loans.

Look at it like this. You do well. You live in London. 10 years into your career you start earning over 100k, so now you start losing your personal tax allowance. You are already in the 40% tax bracket. Then every month you are paying £600 in student loans. You want to buy somewhere to live, but the mortgage broker definitely needs to include your student loan in the affordability factor. Or you get a bonus and well over half gets taken from you. That’s when you start thinking wow, this is hurting.

Why do people keep mentioning mortgages? You go to get a mortgage with a take home pay of 3k a month, they assess your application on 3k a month. And you will then be confused and shocked by this? You already know you took home 3k a month to start with.

I'm also not sure how someone can get an real student loans debt, which presumably means they are educated, then reach a high salary suggesting they are remotely competent at least, but still be stupid enough to only realise they pay a percentage of their money after years of working and when their salary is higher.

Maybe @Mamamamammdo some actual research to understand the issue and the reasons why it’s being quite rightly challenged.

I’m the same in terms of how I view it for myself. It doesn’t affect my credit score and if I were to lose my job, it’s not something I’d have to stress about paying.

But it is not like a tax, because rich students don’t have to pay it if their parents could afford the fees and living expenses.

71% rate between £100-125k with a student loan…!

comparing to loans taken out 20 years is pointless.

If you earn a decent salary it’s very much noticeable and you will miss that money that potentially you will pay for years just servicing interest. Remember frozen tax bands and inflation have all impacted what a decent salary is and how much net pay you receive.

Plus the impact on mortgage applications.

Unless you plan to be a low earner it’s expensive & why go to uni if you plan to not earn much.