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 think you are bring very naive.

Yes it should be considered as a tax rather than debt but for many it will be a lifelong tax which is very unfair. The threshold was never designed to kick in at not much more than minimum wage.

It may not affect credit score but most certainly affect affordability when applying for mortgages etc.

If you consider it as a tax then its one of the most unfair taxes there is.
For some students on the later plans they will be paying it back their whole working life (repayment threshold is practically minimum wage now), pay back several times more than they borrowed and the worst part is that their take home pay could be hundreds of pounds less per month than a colleague doing the exact same job as them, purely because they come from a poorer background than their colleague. I don't see how you can justify that.

It is obviously a tax. Students have to consider very carefully if they will get a better job at the end of it. If they could get an equivalent job with no repayments, go for it. Thats hard to do at 18 though and for some jobs, impossible. It’s very much about career and prospects. What do you need to get where you want to be? If there’s no degree requirement, don’t do one but some careers will be off limits.

If you are going to be a higher earner you should do anything you can not to take out student loans as they need you to basically fund everyone that doesn’t pay theirs back. It’s £100’s a month and barely dents the interest which keeps racking up such that by the end you will have paid back multiples of what you borrowed. . Agree if you don’t plan on earning much with lots of career breaks then it’s a good deal probably but you have to wonder what the point was in those circumstances…. It’s particularly bad for those that start off relatively low paid but increase significantly as they become more experienced. Clever kids are doing apprenticeships now.

in any event if you are a higher earner we have a progressive tax system so you pay more tax. Better to be honest about what it is.

my child is doing a 5 year med degree. They will owe ££££.

@anotheranonanon There’s many employed in the arts who are not earning much. Many go to university to follow a passion and pay little attention to work afterwards. I think it’s a complete luxury in too many cases. We have 37% of school leavers going and we almost certainly don’t need this. Were actors somehow useless without a degree? Or many others who studied to diploma level? Clearly they were not, but we now have degrees in everything without evaluation of who needs them and why. It’s a massive expense for everyone.

We know 50% don’t pay them back. The 40 year loans are meant to reduce this to 25%. We don’t know if this will be the case but we never look at reducing the degrees and boosting 2 year diplomas which are cheaper. Many dc would benefit from this and employers are not interested in many of the degrees now offered so young people struggle yo get degree level work. It’s all a mess really.

If you earn £50k, which isn't a huge salary, you'd pay about £175 a month for most of your working life. That's not a paltry amount at all.

Using RPI instead of CPI to apply interest to the balance is also wrong.

The thing that angers me the most about it all is that the system has been deliberately designed to force young people into this debt - for example you have to do a degree now to be a nurse or a paramedic, whereas you didn’t need to before. There's no other route in.

What? No it isn't. Assuming bog standard 5% pension contribution, it's a difference of about £8.5k a year after student loan deductions, which whilst it is more than the loan payments you'd make of £45k or so, is still a bit of a sting to earn not a great deal more than the average wage.

They do take it into account for mortgage deals though. It’s included as one of your monthly outgoings.

Ok. So if we take 8.5k a year (and I was specific about not including all the variables of which there are many) then are you really saying that you would forfeit 255k additional income over 30 years for the sake of not paying a student loan?
I've lived on minimum wage for a considerable number of years before doing my degree. I'll personally take monthly loan repayment to be able to earn my salary which, granted, isn't awfully high but is still more than double minimum wage. After tax, pension contributions and student loan, it's still 20k more take home pay per year than minimum wage would be.

The threshold for plan 5 is 25k....so in the early days "you'll only start paying back when you earn above x " ....has turned into, "if you work ft , youll start paying it back straight away"

Fucking hell. Totally missed plan 5 shenanigans

I know. I am a qualified mortgage adviser. It's not an issue if you're paying back £20 a month or something as a FTB but if you want to borrow say £50k as a pair of higher earners to build an extension they will look at whether you have enough disposable after a loan payment each.

@FriedFalafelsWhat routes are those then? Apprenticeships for degrees are way more competitive than uni places. Where else can you get a degree? Non degree route. Some careers ok with this, many not.

I said only to go to university if you’re chosen career can’t be done without a degree.

Fees use to be £3k per year & student loans didn’t attract the interest they do now. People gained degrees without even knowing what they wanted to do and I know quite a lot of people who don’t use them.

There are a number of well paying career routes you can take without a degree. Some you can do professional qualifications in and some of these offer a tag on degree for substantially less.

You re being unreasonable.

£40k p.a and deductions of £90 per month is still substantial, that £40k worker is paying a lot of tax and NI, so in effect, people are paying twice to be able to work in our health service, manufacturing or life sciences etrc

At present, we will see a drop in people going to Uni and doing what exactly? Can't work in the NHS without a degree and existing staff haven't the time to mentor apprentices.

Also, how come all of Europe can afford to fund Uni education with high rates of participation, without lumbering young people with debt like this?

Fees and the interest rate calculations are unfair and Labour refusing to do anything about it, will lead to younger people voting elsewhere.

@Alexandra2001 £90 a month is not bad for a job with decent prospects and a career structure though. Someone earning minimum wage for years might see that as a decent price to gain a lot of money.

@FriedFalafels So what about the history grad who wants to convert to law then? Or a psychology grad who wants to be a journalist? It’s obviously impossible to just have degrees for dedicated careers with no flexibility.

As for degrees being £3,000 - obviously they cannot cost that. The true cost, the universities say, is £12,000 plus. So the current level underprices them and the overseas fee is often treble the uk student price. If we insist on keeping the vast number of universities and 37% of school leavers going, someone has to pay. There’s nothing wrong with the premise that the person who gains pays.

The big issue is rule changes and too few paying back the loans because many degrees are not leading to good enough earnings. However young people are still willing to take the punt due to lack of alternatives. The tax payer ends up
paying for most degrees as the loans are not paid off. The 40 year plan penalizes lower earning grads as they pay for longer. Quite simply, most grads don’t earn enough. So we do desperately need jobs where young people train from age 18 but they are so hard to get. University is the default position. It does give thinking time but it comes at a cost.

If you chose the right degree with a clear path and job opportunities at the end the yes it is worth it.

I retained (fully paid for) and although I think my original degree was barely worth the paper it’s written on it gave me the opportunity to work abroad which landed me a good job at the end and was a stepping stone for everything else.

I also think 18 is young to be working for the rest of your life unless you know what you want to do and exactly how to get there without a degree

Again, I haven’t argued about careers which need degrees or those who have took out the loans should pay them back - of course they should.

I just pointed out that if someone is looking at a career path that doesn’t require a degree, then the alternative can be a good option. You have pointed out yourself that so many aren’t paying back as their careers are low paying. Quite a significant number can do these without a degree.

The £3k I was referring too was when I left school as it was more subsidised. This being the default route back then didn’t mean such a huge debt. However with the increase in fees and interest, university shouldn’t always be the default for current school leavers. If it is needed, travelling away to university shouldn’t always be the default like it used to be.

Someone might start out on a modest income, then work their way up the ladder to become well paid… but while they’re getting started, there’s massive interest accruing. By the time they become “high paid” and see hundreds a month deducted from their pay - which will definitely affect mortgage affordability - the accrued interest means it will be very difficult to ever pay off their loan. Of course it’s debt.

Your relatively modest income means you don’t see the full impact. Come back in 10 years when your salary has increased and you’re paying £400, £500, £600 a a month in deductions with no hope of paying it off because so much interest has accrued when you’ve been paying small amounts.

@jackdunnock

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 is indeed another mis-selling scandal. I sat through a few Uni open day finance talks with my DS and was almost screaming at the presenters/slides being shown, all akin to the hapless Martin Lewis's encouragement of taking out maximum loans. NO warnings at all. Slides clearly showing that the threshold would rise each year in line with average earnings (a blatant lie). Slides showing forecast numbers of students who wouldn't pay off the loan - deliberately not making it clear that lots of them would have paid off the capital PLUS tens of thousands in interest and still not fully cleared the debt (blatant misrepresentation). The same slides and notes being used by different Unis so it must have been prepared centrally for all Unis to use.

If it had been any other financial product, there'd have needed to be evidence of the warnings, evidence of "due diligence", evidence of "know the customer", evidence that the right advice was being given. But because the government exempted it from the financial services regulations, there was nothing like that.

It's an absolute travesty how the students have been conned and I'm glad there's finally a lot of criticism and demands for change. Not that I think Rachel will do anything as she's completely hopeless and out of touch!

Personally, I would like to see the Treasury crunch some numbers whereby we treated loan repayments as tax deductible, so lessening the impact on those who do progress.

Plus re look at the interest calculations.

I think the current system is now a disincentive to the working class students it was supposed to assist. Uni is once again for those students with wealthier parents.

@FriedFalafels

If it is needed, travelling away to university shouldn’t always be the default like it used to be.

Unlike big city dwellers, lots of people don't live within easy/cheap commuting distances of a university. Especially in the regions and small cities/towns that have crap public transport.

Not all universities offer the same. It's no use even living relatively close to a Uni if they don't offer the course you want.

Not to mention that fact that Uni's don't offer places to everyone who applies. If your nearest/commutable distance doesn't offer you a place, you've no option but to go to a further away one and that means living there.

All well and good if you are in a place with lots of employers who are taking on school leavers! What if there are no local firms taking on trainees in your chosen career/profession? Again, it's fine for big city dwellers to think our youngsters have lots of options, just because there are opportunities in the bigger cities. What about the majority of the population who don't live in big cities? They can't afford to relocate to big cities as the trainee wages wouldn't cover housing costs etc. There are no student loans/living loans available to those who aren't attending Uni so they can't afford "Uni style" accommodation.

My son is an actuarial graduate. There are literally no firms within commuting distance of our home town that employ actuaries nor train them. How would he get a training job if he didn't relocate closer to the cities where there are financial services firms?

Lots of careers/professions are the same. Try trying to become a nuclear physicist if there's no nuclear power station or nuclear plant within commuting distance of the family home!

At least with Uni, there is proper support in place to help students move to the Uni, student loans to pay towards the living costs, etc.