Would you avoid a government loan for university costs?

[thirdhill]

With the proposed funding changes, where repayment appears to be effectively a licence to deduct future earnings, rather than to recover what was borrowed, what would you do?

E.g. commercial loan, mortgage extension, student holiday work, working and saving before course starts, are some alternatives. Or even, as has been experienced in many less developed countries, where future stars live and work elsewhere and avoid repayment.

This is assuming that most people do not plan a future that fails to earn enough of a living to trigger the tax.

Or would you see signing up to having future livelihood taxed as your best option? I'm curious as to how many people will actually find a way of resisting the offer of signing up to extra taxes for their working lives.

You haven't mentioned the other option: not bothering with a degree at all because it's not worth the debt.

yes IDK that's being said quite a bit these days, but doesn't seem to have dented the enthusiasm for some degrees... the sort that people around the world fight for the privilege of paying £20+k tuition fees a year. It makes our £9k fee look unspeakably cheapo. Just wondered though if others find the concept of signing up to an additional 10% tax for 30 years very resistable.

I agree with you. If the Chancellor said that he was raising PAYE by 9% there would be rioting in the streets but 9% graduate tax loan repayments have been swallowed hook, line and sinker.

I have encouraged (and we have helped) DS avoid a student loan - so far. It's an uncertain world, so who knows.

Our reasons are -
He has the opportunity to work and earn some money.
Student Loans are totally inefficient - he had to register with them to get the bursary he was due from his uni for his A level grades - and they automatically paid money to him, although it wasn't requested.
The interest starts adding up the second you have the money, event if you're not able to start paying for years.

I appreciate that for many there is no option, but if there is one, I'd certainly look at taking it.

Whew - I am old enough to have had my fees paid, and I got a maintenance grant to boot, as well as part time working.

We are not a wealthy family, while DH and I are on a reasonable wage and well over the bursary level we cannot pay the tuition fees upfront and don't have any major assets to mortgage. I would try and discourage DD from taking out a loan for maintenance and prefer to pay her rent or living costs for her, or give her money from time to time. She would be expected to take a part time job as well. DD expects to do law as a career but is unsure whether to do a law degree or another subject and then the conversation course - which would necessitate a Career Development Loan, as well as one for the professional course after that.

I also feel I should persuade DD to stay at home and study in London rather than try for Oxbridge for example although she is clever enough to be in with a good chance. I also feel that part of the experience of Uni is being able to leave home!

I feel therefore that I am limiting her in terms of degree and location which is not something I really want to do. Though to tbh at least she should have a reasonable income at the end of it all.

I hope that if ds goes to uni that I will fund it. I had fees paid and a small grant and I really resent that not being available to ds. All very well to say that it doesn't have to be repaid until earnings are above a certain level but the entire debt is taken into account for mortgage purposes.

If things don't change in this country in the next 10 years I will be encouraging ds to go to university in the US where there are very generous bursaries on offer. Here we seem to have the worst of all worlds - increasing fees but no culture of bursaries, scholarships etc.

DS isn't yet 3 so this is a long way off for us. However, if the current system is in place in 15 years time (unlikely) I wouldn't pay the fees upfront even if I had a spare several thousand pounds. Invest your cash in a long term bond and wait for your DC to actually hit the £21k trigger salary. If your DC decides to become a social worker or a nun or something this may never happen, or may not be for 10 years, and if you paid the fees up front you would have wasted money because the amount they would pay back over 30 years from a loan would be much much less than the upfront fee. I certainly wouldn't take out a loan or mortgage extention as these would be higher interest rate and would be unforgivingly never written off no matter what happens. Getting DC to earn it in gap year and vacations is fair enough but I would think that no more than 50% of such earnings should go towards fees (the rest to ease immediate cashflow worries and provide a better standard of living) and would still invest the cash earned until the £21k trigger was reached.

I don't think the regime is actually that onerous - remember the 9% is only on earnings in excess of £21k so poorer graduates would pay nothing and payments would remain very modest while earnings are modest - fairly irrelevant amounts compared to the cost of gym memberships, lovefilm subscriptions etc which are hardly essential but which young professionals seem to have little difficulty finding the cash for.

If it was the only way for DC to go to Uni then I would tell them the loan was worthwhile. I am debt adverse so would try to avoid loans otherwise.

It's still a much more generous system than I was offered 25 yrs ago (another country).

This is a very low rate of interest and does a couple of very good things in my opinion. First, it places a value on time and effort at University which hopefully will focus the mind. Second, it creates, in theory, a credit history for the student. If you want to pay off the loan later as a gift you can - as far as I can understand the ability to repay early comes without penalty(unlike some mortgages!). I agee with ragged - its a generous system.

xk... if what you say is true the scheme would not be sustainable. It relies on the extra 9% from all taxable earnings to keep going.

I think what is implied is that prospective students who expect to earn a lot over their working life should avoid the loans like the plague, while others may be OK to gamble.

Thereitis people nowadays moan about interest rates being 3-5% when they were typically 10-15% over the entire length of our mortgage. Let's hope those willing to gamble know they are happy to mortgage their entire taxable earnings for 30 years.

I'm not sure how generous it is since the numbers have to add up based on public borrowings on the open market. 10% of taxable earnings is means they would have to repay some £3 for £1 loan taken out, probably because of those who will not have to pay and those still going through the "generous" system. However I thank you for sharing your take on it.

aj/Kensi/Hissb - it's a little scary to hear echoes of our own discussions! London seriously being looked at instead of Oxbridge because of room/dining costs. Harvard/Yale etc good for liberal arts type DCs but tricky for medical/law school or those ripe for specializing, where US graduate schools are the better comparator. But yes, such ponderings are certainly affecting A level choices with confirmed atheists electing for RS to keep the US route open.

if having gained a degree my children earn less than 21k i would be very disappointed. social workers normally earn much more than this (according to the adverts where we live).

we will be paying as much as we an afford and we have been saving for their uni years rather than forking out on lots of foreign hols/interior design (which our friends have done). even so it will be a struggle.

whoever says its a good system - no its not - not compared to wales or scotland where its much cheaper. my kids will pay 18k+ more than children from these areas - where's the good deal in that?

i can see the logic of investing the money rather than not taking out a load. but who knows how things will change in future and what interest and other rules will be put in place. what a terrible way to start adult life - to have a student loan the size that many of us had a mortgage for

I don't have an issue with the loans so much but the interest aspect is appalling. I'm not surprised the government didn't want a graduate tax - surely this is a much better deal for them; I don't know of a tax that increases with interest when you are not earning or earning under threshold.

Those of us who've had 18 months notice of a tripling of fees have had little chance of saving to help our offspring.

most jobs earning less than 21k full-time don't actually need a degree. so your degree is free if you don't need one; but if you are doing a more complex job (that hopefully provides something for this country) then you have to pay for it. I hope anyone agreeing to this policy remembers when they can't have english speaking teachers, doctors, architects etc.

I was thinking about trying to pay the fees up front but then I read an article by Martin Lewis which explained that it's not worth it unlesss you can be absolutely sure that your child is going to be a high earner. If they don't ever get a decent job they don't pay back a penny and have effectively had a free education so you'd have forked out thousands for nothing. I'll see if I can find the article.

Here www.moneysavingexpert.com/students/should-i-get-student-loan

My 2 have both got in before this comes into effect but I do think some people are having too much of a panic over this.

If the family are poor there are bursaries and grants, some of DDs friends get some now. If the graduate doesn't earn much they don't pay till they earn enough, DS didn't repay until his 2nd year out of uni.

fivecandles that is the advice we were given. Don't pay anything, if you want to contribute set up an ISA for DC each year. Having said that, we did an ISA each year for DS then when he graduated and was looking for work he couldn't get JSA as he had savings Makes you wonder why you bother.

So has anyone actually used the calculator and seen much repayment is compared to the actual loan? For those who think 9% is a low interest rate, long term interest rates tend to be 3-4%. Thirty years is long term enough for most people.

Has anyone checked from when interest starts accruing? Not when repayment starts, but when interest starts clocking up?

Is there an actuary who can say what repayment proportion is needed for the scheme to sustain itself? I had a play about with the model, but there was a recent MN thread saying Lewis is paid by the Government to push the new scheme. No idea if this is true, but the numbers just don't stack up. Thirty years at 9% is something nobody sensible would chose for a mortgage these days.

There are no free lunches.

If you pay for yourself you know you aren't subsidising the proportion who do not have to repay. That's unless you're gambling on the likelihood that you're one of the free riders who will never earn enough in 30 years to have to repay. Even those on bursaries may choose to work during holidays etc to avoid taking on other people's loans.

Clearly many will be happy to take on the loan scheme based on the Lewis calculator. Let's hope they know what it means.

My understanding is that the loan is 3% above inflation. Inflation is currently approximately 3.6% per annum making the cost approximately 6.6% - I don't know how you reached 9% thirdhill - Perhaps I've got this wrong. This scheme does make it possible to go to University if you don't have vast resources. The Universities are able to value what they offer. Students are able to see the opportunity of University as a life enhancing opportunity that must be paid for. That contract is important for learning. Cheaper isn't always better. As Freud is often quoted as saying: "If you pay for it - you must receive it." His explanation for why he felt comfortable charging for his expertise. It helped the patient. I will help my children pay their debts but I want them to value what they are receiving from their Universities - putting a price tag on it automatically does that.

thirdhill 9% is not the interest rate - it's the rate at which a graduate starts paying back the loan on their earnings over £21k - so someone earning £22,200 pa is earning £1200pa over the threshold, or £100 per month, so will pay back £9 per month. Someone earning £33,000 is earning £12,000 pa over the threshold = £1000 per month so will pay back £90 per month.

The interest rate is variable depending on income so those paying back most slowly will be on the lowest interest rate, but in most cases the interest rate will be irrelevant - the vast majority of graduates, except those who become very wealthy, will just make their 9% payments for 30 years then have the remainder written off - there is an assumption in the calculations that this will happen a lot, and the shortfall in repayments is supposed to be paid for by the higher interest rate applied to higher earners.

Thanks for the explanation - presumably thirdhill's 9% interest rate is a misunderstanding then and the number shouldn't be compared to long term interest rates of 3% or 4%. Am I right in thinking that the lump sum of the debt can be paid off at anytime without penalty?

theritis Mr Lewis' website says

"The key fact is ...

You repay 9% of everything earned over £21,000, though it's wiped after 30 years regardless. If you never earn above £21,000, you never repay."

So how does inflation +3% on a loan make up 9% of a salary. One is interest on a loan that starts clocking up when they give you the money, the other is how much of your salary you sign over. Could it be people actually order lunch without checking the bill properly beforehand?

Speaking as someone who had to pay fees 30+ years ago, due to my parents living overseas, until postgraduate research grants kicked in, I think students have always been aware that there is both cost and value to education. The question is who is going for the loan scheme. Apparently those who have not explored how interest at inflation + 3% clocks up to 30 years of 9% tax on salary. That's interesting in itself. Surely those without vast resources would be more careful how they sign up to losing them, but perhaps the lack of understanding reflects how financial products bamboozled us into the economic shambles we find ourselves.

It is NoT taken into account for your mortgage either. (currently doing my finance for s for uni.)

Yes, I think that's now been agreed. Lump sum can be paid off, no penalty.

If things don't change in this country in the next 10 years I will be encouraging ds to go to university in the US where there are very generous bursaries on offer.

If you're lucky. I'm not convinced the grass is greener on the other side of that particular fence; Americans I know find putting their kids through college a real problem. If they can't pay - well, the kids can get a loan, but they have to start repaying on graduation whether they have a job or not. A friend of ours ruefully commented their family was saved by the kids grandparents pegging out at convenient times.

Guys I'm assuming that we all know that 9% rate on taxable earnings is generally more than inflation +3% on student loans. Just checking.

So I was being generous in saying 9% on the loan, In fact it's a hell of a lot more. Cos most people earn more than the maximum student loan.