Student loans, do they get paid off?

[TaraKnowles]

I heard an article on the radio today saying that the current way of having student loans was the worst for both worlds. In that the amount students can borrow is too high, but that for a middle earning professional, they would never pay it back.
Is it worth our children taking student loans, would a nurse or teacher today ever pay them back in full?

Yes it is worth thing them out. Aren't they cancelled if not paid off in 30 yrs? It's not like they're a noose arounds Dcs necks for the rest of their lives.

The only issue I have with them is if interest rates go up...

Also what is the alternative for a uni student nowadays?

I know a lot of people that have paid them off but they graduated 10/12 years ago when tuition fees were new and quite low compared to today.

I think once you reach a certain age (around 55-60) you stop paying it back irrespective of whether you have repaid it back in full. A common theory is to look on it as a tax rather than a loan.

One important point to remember is that it is up to the student to tell the Student Loans company when they have paid off the loan.

What is the rate that they get paid back? For say a professional like a teacher or nurse? When I worked in banking I think I was just paying £15 a month back. I know it's hard on the new graduates who have 'good' normal jobs and then get the student loan taken against their mortgage, which now are hard enough to get.

A lot of people will never pay them back in full as they will be paying so little per month and they will eventually be written off.

Look at moneysavingexpert.com for a lot of clear info about it.

A lot of people won't ever pay them off - especially if they take a few years out to be a SAHP or if they work PT.
Which is why, if it comes to a choice of having the student loan and using some savings / inheritance / gift from somewhere to put a deposit down / make your mortgage smaller or using all available money to start life without a student loan, you'd be a fool not to have the student loan. No other loan will just let you take payment holidays in the years or months when money is tight.

You have to get your mindset round to thinking that it's a "graduate tax" rather than a loan in the conventional sense. After all, years ago, when we didn't have to pay fees so had no loan to pay back, everyone was paying a LOT more in taxes than people do now. I would only ever take home around 2/3 of my gross pay. Now, the personal allowance is so high, as well as the 'ordinary' rate of tax being a lot lower than it ever used to be, everyone pays a lot lower % of tax, but if you are lucky enough to have benefited from a University education, then you will end up paying a slightly higher rate of "tax" ie - your loan repayments. However, at any point you aren't earning a 'graduate salary', you won't have to be paying that tax.

OK I think that this is an economical/political problem. They said on the radio that 45p out of every pound was written off.
Why don't they just have grants again.
Thanks for your input.

They can't afford grants whilst up to 50% of the Country is going to University.
Grants happened in the days when only 5-10% of people went to University.
With loans - according to your figures, more than half is paid back, and then of course there's all the interest received as well.

A nurse would be on an nhs sponsored course. There's no fees.

Tara the cost of education has not changed - in the past the govt paid the universities directly, so 100p in the pound was paid for pay the taxpayer, including a lot who never went to university. Nowadays, high earners pay the full cost alongside their tax.
Overall the long-term cost to govt is halved, with 55% paid by the graduates.

You may not pay them off but you will be paying 9% of your income over £24,000 for ever more, along with interest of 3% + rpi (I think ...) and this will be at a time when you will be struggling to get a mortgage etc.

Its £21000, not £24000. Although the threshold rises over time too.

And the rules they are currently agreeing to might change (so we have heard).

Personally, I think fees should be lower. If they were £3k a year but repayable not just out of above threshold income but also gains and inheritances and never written off, then we would pay them now for my DD. At £9k we just cannot afford to. She is on a creative course and is one of the most likely sectors to struggle paying off the current amount in full.

I graduated in 2010. The amount I pay odd doesn't even cover half the interest on it. I don't imagine I will ever pay it off.

But the fees represent the cost of the course: 3k per year wouldn't cover the costs and when the fees were 3k people still didn't pay them upfront or pay them back quickly. Most courses cost more than 9k per year to run, and the 9k is of less value every year, so universities are actually having their budgets cut in real terms every year.

That company is run so badly, they can never tell you in real time what you actually owe. They rely on you keeping all your payslips to work it out. Which I do but I think being able to see how much someone's owes is important.

I used to think I would never pay off my loan and it never bothered me. It has no real impact and the amount they take through PAYE compared to salary can be pretty reasonable even if you are a high earner.

But now I have to fill out self assessment as a shareholder of a limited company I'm pretty sure I'll have paid it off in just a few short years. Much to my displeasure lol!

Uilen, obviously the taxpayer would pick up the difference on course cost. I'm just trying to look at the greatest recovery for the taxpayer and that is not necessarily the highest fees - it's more about the rules surrounding repayment. I don't actually disagree at with them paying their way but the rules cause market shifts which are more due to the rules than due to the choice of going to Uni and that is wrong.

The interest charged on the student loan is RPI plus 3%. That is higher than our mortgage rate and interest starts accruing from the moment the loan is taken out. So while your DC may not need to pay anything if they are earning less than 21K, they will be clocking up interest. Now it is being said that this debt will be taken into account by banks when applying for mortgages, making it impossible for them to buy a property.

It is a dreadful thing that is being done to students, particularly ones who naively clock up these debts doing fairly useless degrees. They are being grossly mislead.

Personally my view is if you can help your DCs with the fees, then you should, while at the same time trying to ensure they do a degree which leads to a job, at the best possible Uni they can get into.

Kez If the fees were £3k and fully repaid, the taxpayer would be £6k a person down.
If the fees are £9k and 45% repaid the taxpayer is less than £4.5k out of pocket, so better recovery with high fees. Also, that 45% will pay interest, so more money is actually recovered.
There is an argument that they should charge higher student fees (c£15k a year). This would be no change to those who do not pay it off, get more money from the richer graduates and allow unis to offer more support bursaries for living expenses for poorer students.

I didn't think the loan went against your mortgage?

I'm a mortgage advisor..for a mortgage the monthly amount you pay is taken into account (not the total loan) so it doesn't make that big a difference to the amount you can borrow.

Thank you Ella! I was worried for a second!

Except the loans DONT cover all the costs - humanities courses are fully covered by the £9k fee. Science courses certainly aren't, so the taxpayer continues to subsidise the balance.

Additionally the Treasury funds the SLC, but hasn't started to collect any repayments yet, and is now estimating they'll have to write off half. The original estimates were 80+% being repaid.

titchy with no loans, no money would come back. Without any loans, the taxpayer funds the full bill, with loans some comes back, even if only half. Non-graduates subsidise graduates less, a good thing

Thanks for all the responses. It sort of goes against my principle of 'debt is bad, pay it off ASAP'.
I do find the slc a pain to deal with.

Except the treasury has had to stump up a much larger upfront cost to the SLC than it ever anticipated - the original decisions were made on the assumption that most degree courses would have fees of £6k!

DH graduated in 2011 with £30k of student debt from two courses . I can't imagine it ever being paid back fully, although they are taking back £300 a month so we really notice it go!