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Higher education

Talk to other parents whose children are preparing for university on our Higher Education forum.

Original poster

student loans

40 replies

Moominmammacat · 29/01/2013 13:36

Does anyone think student loans aren't the marvellous thing the Government would have us believe? By its own calculator, if my DSs borrow £56,000 for a four year course(£9,000 tuition and £5,000 maintenance per year) they'll pay back £154,030 over 30 years, paying 6.6% interest from day one. Wouldn't we be better off taking out a second mortgage at 1.99% than doing this? Or am I missing something vital?

OP posts:
TalkinPeace2 · 29/01/2013 14:49

BECAUSE they are not a loan they are a tax.
You only pay back 9% of your earnings over a certain amount.
If you never earn enough, you never pay back.
If your earnings drop, so do your repayments.
Anything you have not repaid after 30 odd years is written off.
Find me a mortgage with terms as jammy as that

goinggetstough · 29/01/2013 16:22

True "TP" on the face of it. However,there are negative things about it too. It states that the terms and conditions for the student loan can be changed at any time( as discussed on a previous thread) and most( ok not all) graduates would hope to earn over £21000 shortly after graduating.. So the interest is accruing as soon as they take out the loan in their first year and they will be paying back as soon as they earn £21000 or whatever figure the government decide. Plus the amount loaned will not necessarily cover their accommodation costs let alone food.
We were very lucky when we went to University!!!! Full grants etc

TalkinPeace2 · 29/01/2013 16:26

But once your loan has been taken out, the terms on THAT loan are fixed.
So old low interest ones stayed low, even when the new ones went up.
Its not an open cheque book (almost)
and yes, grants were lovely :-)

creamteas · 29/01/2013 21:12

Talking there is nothing to say they can't change the terms and conditions after the loan has been taken out. They might need a Bill to do it, but it could be done.

The new threshold for repayments is better than the old one. But when the old one was introduced, it was quite generous as well they never index-linked the point at which you start repaying (and I'm sure they will do the same this time)

TalkinPeace2 · 29/01/2013 21:16

creamtes
Retrospective legislation on loan agreements is unheard of - it would have so many ramifications that they would never risk it.
When you sign a loan agreement the terms are stated.
Those are the terms for the duration of that loan.
The following year's one might have different terms.

goinggetstough · 29/01/2013 21:49

"This guide provides information about the current terms of your loan and repayment.
The regulations may change from time to time and this means the terms of your loan may also change. This guide will be updated to reflect any changes and it is your responsibility to ensure you have the most up-to-date version."

This comes from the guide to student loans, so it shows that the terms may change. Martin Lewis ( Money Saving Expert) says as they would have to change the law it is unlikely they would do it, but they could. It happened in New Zealand when they changed the rate from 10 to 12%.

So sadly TP it is possible!

TalkinPeace2 · 29/01/2013 21:52

has it happened in the UK - just that the UK's finance Acts are worded to protect LOTS of borrowing and the lawyers would have a field day.

honestly I'd regard changes in loan terms as theoretically possible rather than actually

MariscallRoad · 30/01/2013 01:36

Moominmammacat mortgage interest rates can change too; house prices may change. There are unpredictable factors in both study and homeownership. Perhaps a talk with your bank manager is an idea taking along DS. What does DS think?

boomting · 30/01/2013 02:44

It's highly unlikely that terms for existing loans will change, so there's very little point in worrying about it.

Most people won't pay off the full amount of their loans before they are written off after 30 years. Repayments are based purely on how much you earn not how much you owe. Repayments are 9% of anything you earn over £21,000 per year. So, for instance, if he was to earn £26,500 (UK average, I believe) then he would pay 9% of £5500, so £495 per year. The repayments are deducted from wages before you see them, just like tax.

If he was to die / end up disabled / be made redundant / become a househusband / decide to jack it all in and be a destitute artist, then no repayments would be due on his student loan, unlike a mortgage.

eatyourveg · 30/01/2013 07:30

what I want to know is if you die, does your debt pass onto the nok as an outstanding sum due or is it written off?

eatyourveg · 30/01/2013 07:45

woops - didn't read the post above - not awake properly yet

Original poster
Moominmammacat · 30/01/2013 12:59

Mariscallroad, at the moment he plans to earn £10,000 a year for living costs ... don't know about the tuition element, maybe a loan from us but do not want them missing out on free money. I would have thought most would manage to earn £21,000 + though ... it's all that interest that bothers me.

OP posts:
noddyholder · 30/01/2013 13:02

It seems ridiculous that after spending over 50k on an education you may not earn over 21k

chicaguapa · 30/01/2013 13:15

The interest is only the cost of inflation. So in real money terms, they'll only owe what it's worth that day. IYSWIM?

TalkinPeace2 · 30/01/2013 13:25

Moomin
please do not borrow the money yourself.
Friends are currently going broke because for some reason they will not take out student loans for their kids - and its crippling them. They might lose their house so save their children being in debt Shock

Student loans are a tax.
A tax on having higher earning potential because of a degree.
If the degree will not give higher earning potential, do not do it.

PattyPenguin · 30/01/2013 19:43

Chicaguapa, at the moment the interest rate is the inflation rate plus 3%.

Remember, the threshold at which borrowers start paying, the interest rate and other conditions can all be changed through "secondary instruments" i.e. amendments to the existing regulations or new regulations; a new Act of Parliament will not be necessary. That's on existing loans, not just new ones taken out after any regulations are passed.

The repayments on a student loan are indeed a form of tax - and taxes can go up very easily.

TalkinPeace2 · 30/01/2013 20:13

Patty
can you find me the clause where they can change the terms on existing loans
because that was NOT the case with DH's that were still running when the rate system was changed, but he still paid the old rate.

creamteas · 30/01/2013 20:34

TP when they have changes the system previously, they choose not to alter existing loans. Most people believe that it would be the same in future, but there are no absolute guarantees.

MariscallRoad · 30/01/2013 20:43

Moominmammacat, It is v good that ds will earn as a student a fair amount and would be good if he could keep it in savings. Not all students take loans and families may chose different financing methods than loans and mortgages.

It might be best - this is just IMO - to try and generate a a lump sum from savings from work and invest it and try and get a cheapest IR mortgage for spending. One can put a lump sum as adown payment for a house but if it is spent you dont regenerate it easily. The IR is something to worry because it is taken account of into the outgoings of a first time buyer.

TalkinPeace2 · 30/01/2013 20:50

Creamteas I have to disagree. I have DH's loan agreement. THe one he signed. A contract. It says his interest would be "0.75% below base for the duration of the loan". There is NO WAY (under contract law - which takes precedence) they could alter that without renegotiating the loan.

goinggetstough · 30/01/2013 21:25

www.studentloanrepayment.co.uk/pls/portal/docs/PAGE/RPIPG001/RPIPS001/RPIPS006/DG_200469.PDF

This is the link to the terms and conditions for loans taken out 2012/13 and it states that the terms of the loan can change as Creamteas has mentioned. These are the terms and conditions for loan taken out this academic year so that is maybe why your DH's contract is different.

The future problem is that universities have charged higher fees than the Government predicted. So unsurprisingly they have a shortfall, as they have loaned more money than they expected. So sadly for students in future years 2013+ the terms and conditions probably will be very different to this year's Ts and Cs. So if they can recoup their money this way they will not have to change the terms and conditions for those who took out loans this year, but if they can't, who knows what they will do!

TalkinPeace2 · 30/01/2013 21:35

OK, I've read that link.
The interest rate - RPI plus 3% is set in the contract terms. RPI can change, but the 3% cannot.
Yes, the earnings start point can be altered so they could be nasty and drop it right down, but the interest rate is locked.

noddyholder · 30/01/2013 22:52

I think this is one the govt will definitely tamper with.Student loans and inheritance tax.

PattyPenguin · 15/06/2013 16:58

Just reviving this thread. Don't want to alarm anyone, but the Treasury is worried about the percentage of student loans that will never be paid off in full. So various ideas are being discussed including
"The Treasury is said to have suggested that the threshold could be lowered, perhaps as low as £18,000 in a move which could potentially save hundreds of millions of pounds."

Daily Telegraph article here www.telegraph.co.uk/education/educationnews/10119622/Students-must-pay-back-loans-sooner.html

Another suggestion
"A confidential report commissioned by the government has proposed redrawing the terms of student loans taken out over the past 15 years, that would make them more expensive to pay back for 3.6 million borrowers in England alone.

The proposal to increase the interest rates on the £40bn worth of loans is the most controversial of a series of options contained in a Whitehall-commissioned study examining how the coalition could privatise the entire stock of student loans issued since 1998.

Increasing the amount that students would be forced to pay back would make the loans more attractive to buyers."

Guardian article here www.guardian.co.uk/money/2013/jun/13/raise-interest-rate-student-loans-secret-report

fussychica · 15/06/2013 17:42

They did it to all the women who expected to get their pension at 60 who had it moved to 65 then 66 for some - thousands of pounds of expected pension gone in an instant. So I wouldn't be in at all surprised if they do something like this to students. If the changes only apply to pre 2012 loans it's win, win for the government as it won't have any adverse affect on student numbers. bastards