Government to lower threshold for repaying student loan

[whatareyalaffinat]

Article in the Financial Times late last night, reporting that the government is considering a number of measures relating to student loans. They want to lower the point at which a graduate starts repaying their loan to £20k down from £27k.

This is to push more people into ‘useful’ and vocational subjects. They want to decrease the amount of debt that is never repaid.

This is not a graduate tax, this is another slap in the face for our young who have given up so much these past few years. This also hits those most who don’t come from families with wealth. This is in essence a tax on being poor.

What other loan contracts can be changed by the lender at a second’s notice?

The government can borrow money at 0.5% but student loans are 6%+ and set to rise.

A complete farce.

@Tinpotspectator

So many threads on Mumsnet defending the most right wing of the government's ideas, these days, and quickly too. And in droves, and often quoting this or that rule.

Does central office put you up to it? I swear in future years we will find that this invading of social media is a part of Cummings legacy.

Is it so difficult for you to grasp that some people may have views different from your own and which chime with the govt of the day (elected with a very large majority let’s remember) that you have to ascribe done kind of conspiracy theory to it. Ok then.

I’m against the interest rate rather than the other aspects. I can borrow to buy a house at 2% so why are student loans at Rpi ( generally 2-3%) Plus 3%?
That’s the scandal.
People always argue but most students never pay it off! But that’s because of the compounding interest rate not the original loan itself.

@RoseAndRose

So many threads on Mumsnet defending the most right wing of the government's ideas

Umm, setting it up so the government can unilaterally change the threshold and the interest rate was done by Labour

Tuition fees were introduced by Labours as well (though if they had increased in line with general inflation, they would be around £6k not £9k)

Who said Labour and right wing were mutually exclusive ?!

@sashagabadon

I’m against the interest rate rather than the other aspects. I can borrow to buy a house at 2% so why are student loans at Rpi ( generally 2-3%) Plus 3%? That’s the scandal. People always argue but most students never pay it off! But that’s because of the compounding interest rate not the original loan itself.

Exactly, FFS!

I honestly think Martin Lewis has a lot to answer for for people not being more irate about this.

My son is hoping he will he will have a high earning career. If he succeeds then this is a ridiculously expensive loan.

Why can't the interest rate be inflation so that you pay back what you borrowed in real terms?

Who said Labour and right wing were mutually exclusive ?!

Good point!!

@sashagabadon

I’m against the interest rate rather than the other aspects. I can borrow to buy a house at 2% so why are student loans at Rpi ( generally 2-3%) Plus 3%? That’s the scandal. People always argue but most students never pay it off! But that’s because of the compounding interest rate not the original loan itself.

I agree in order

I agree in principle that as public loans they should be pegged at RPI, but to compare them to mortgages is stupid.

No mortgage lender would lend tens of thousands to an 18 year old with no job and no collateral. They're more comparable to credit card and personal loan rates - which are much higher for young people with no assets - and impossible if you have no income.

@titchy

I agree in principle that as public loans they should be pegged at RPI, but to compare them to mortgages is stupid.

No mortgage lender would lend tens of thousands to an 18 year old with no job and no collateral. They're more comparable to credit card and personal loan rates - which are much higher for young people with no assets - and impossible if you have no income.

Why, though? 🤔

It's a debt that you can't get out of even of you go bankrupt. Unlike a mortgage, credit card or other loan. So why have they got punitive interest rates as though the person is high risk? It's NO risk as they deduct it straight from your pay cheque!

However what you pay back is based on earnings over the threshold so for someone on £30k with £50 of debt they pay effectively an interest rate of about 0.5% a year (not the 6%). The 6% might be racking up but in 25 years all written off. If they earn a lot more though the amount paid can be a lot more including a lot more than 6% of the sum outstanding. If you earn £200k you pay £57,570 a year on the £50k until it and the interest are paid off.

ifs.org.uk/publications/15626 no easy answers as this recent analysis by the IFS re-inforces.

@Xenia

However what you pay back is based on earnings over the threshold so for someone on £30k with £50 of debt they pay effectively an interest rate of about 0.5% a year (not the 6%). The 6% might be racking up but in 25 years all written off. If they earn a lot more though the amount paid can be a lot more including a lot more than 6% of the sum outstanding. If you earn £200k you pay £57,570 a year on the £50k until it and the interest are paid off.

Are you responding to me, because if so I know this and it is why I am worried!

If you earn £200k you pay £57,570 a year on the £50k until it and the interest are paid off.

I don’t think that’s right? 9% on earnings over £27k on a £200k salary is £15,570 per annum.

@Ekofisk

If you earn £200k you pay £57,570 a year on the £50k until it and the interest are paid off.

I don’t think that’s right? 9% on earnings over £27k on a £200k salary is £15,570 per annum.

Well it can't be right because from her calculations you're paying back more than you owe

Yes, but you’d pay it back in less than 4 years.

I think its a good idea. Ive seen threads on here (not lately) about how to get away with not paying a student loan. So blame them.

@Ekofisk

Yes, but you’d pay it back in less than 4 years.

So 8 years from the loan being taken out. Potentially £80k at ~5% or more for 8 years

So 8 years from the loan being taken out. Potentially £80k at ~5% or more for 8 years

I was working off Xenia’s figures of a £50k debt at graduation and then a £200k salary.

£9k fees plus £5k maintenance each year at 5% gives you roughly around £46k debt on graduation.

How much that debt grows depends on how quickly your salary increases - a rapid increase in salary means that you pay off more off the principle each month.

In Xenia’s example you’re paying off a large proportion of the principle each month.

principal not principle. Too tired to spell properly last night.

I honestly think Martin Lewis has a lot to answer for for people not being more irate about this

Even if he did it for the right reasons I agree that there has been too much whitewashing of the T&Cs of such a system and their implications. Students and their parents should be fully informed. Even the fact that the RPI +3% accumulates from their first year of studies seems to be a surprise to many graduates.

Agree. Martin Lewis was right in that students shouldn’t not apply to uni due to costs.

BUT the rates have changed since he started giving that advice and it’s no longer accurate.

If you need a loan then for some it will be worth adding to the mortgage rather than take this out.

Or take the lowest amount of loan you need rather than the default amount.

And take it as late as possible. So if you are lucky enough to have savings don’t take a loan til the 2-3rd year etc

I agree with lowering it some people never ever pay it back

Some never pay it back (currently around 75%) because they don’t earn enough. Can’t pay it back if you don’t have it.

My calculation above is dreadful !! I meant to type that our £200k a year person pays 9% of 200k less 27k
That is £173k x 9% = £15,570 a year.
(the £57k above (of mine) is rubbish)

So assuming a £50k debt £15,570 a year is the equivalent of about interest rate of about 30% interest rate. Where as our teacher on £30k wage of life pays about 0.5% interest on the same £50k.

This I have often said if parents were paying school fees and their child will earn a lot (2 of my children are London lawyers and 2 more hopefully about to be but the van driver one is not so in his case financially for me he might as well have had the loan)

However our £200k a year earner in that £15 570 a year repayment (their 9%) is probably paying some capital back too as they are paying so much back.
That will be why someone on the thread above said very high earners will pay back the debt quite quickly so have fewer years of interest to pay and those in the middle perhaps pay lots and those in very low salaries pay very little indeed.

If you get that coveted high earning job, pay it off asap. However not all grads are earning £150,000 before they are 30! Most take the loan because you hedge your bets. You don’t expect the high paying job is a given. So take the loan in the first place and then decide what to do if the fantastic job is attained. For lower earners. It’s still best to take the loan as it’s still relatively cheap. However the threshold should be as it is or £25,000. Not less as that’s a salary which doesn’t show a grad premium. You could argue it should be £30,000 which is an average starting grad salary.

TF I agree although I am still happy I funded the children without loans for psychological and other reasons - I just wanted them to be in the same position our parents ensured we were in the days when they made the minimum grant up to the maximum grant for us.

I suppose as most people do not pay the loan back parents who fund children without loans are giving extra money to the state which perhaps is helpful for the NHS etc.