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.

It isn’t just about having to pay it back, it’s also about the kids having to establish themselves and get on with life without that additional 9% tax hanging over them. It limits the mortgages they will be offered, their ability to live on a grad salary in London or other expensive city, to save from income, etc. And as Xenia says it is a psychological drag to know that they have an eg £60k student debt causing high taxation perhaps most or all of the way through their working life. So lots of reasons to avoid it if you can, and limit the debt taken as much as possible, I think.

My dd1 graduated without student debt in 2019 (in fact graduated with £15k savings from working various jobs every holiday) and now 2 years later she has worked on a grad scheme in London for an employer who has also paid for her part-time masters, and will have her professional qualifications in March next year too, both of which will cause a big salary jump. She has been also doing evening babysitting jobs and is pretty frugal so despite paying her London rent etc her savings have risen to £40k. I haven’t given her a penny since graduation. She reckons in spring 2023 she will be able to buy a flat (not in London) for investment but she wouldn’t if her take-home had been reduced by paying back student debt because (a) her savings would be reduced and (b) her mortgage offer would be lower on the reduced take home pay. Also, she has done this all herself, because of the freedom afforded by no student debt, rather than me just handing her the £60k I spent on uni as capital for a flat, which would still leave her servicing the student debt (rising at 6% interest pa) for years.

Erm outside the uk people are paying off student loans straight out of uni no matter their salary.

Where I’m from it’s two payments, together they amount to one months salary. People just get on with it. As I lived in the uk and had uk maternity pay, and the amount is calculated based on what you earned the previous year. My payment for that year was higher than all of my SMP combined.

It is certainly freeing not to have debt and also the hassle of dealing with whatever loans company it’ll be sold on to,
probably multiple times for the next 35 years.
I often have a little second job working as a steward/ Marshall for London events , and some London attractions. I do it for fun as much as anything else but I was thinking that every penny you earn extra is also liable to this extra tax and it could put you off promotions and taking on extra work that’ll give you extra opportunities.
So for me that’s another reason. I sort of see it as making up for my free education and a monthly “gift” to my daughter for the rest of her life in terms of tax she will not have to pay.

It doesn’t restrict mortgages. It’s still a grad tax.

My issue with lowering the threshold is that you are now taxing grads with no grad advantage. Starting salaries for grads has stalled for neatly 10 years. The average is £30,000. Therefore reducing the threshold to lower salaries then £25,000 is taxing people with no grad premium earnings at all. But of course they have still used tax payers money at university. The only way out of this is to reduce the number of grads so they all get a grad premium salary. At the money many don’t but have still received money from the state they won’t get clues to repaying.

At the moment many don’t get grad salaries ….. that should have read

Of course if parents didn’t pay fees and living costs they would be able to give their child the £50,000 for a house deposit. It could have been invested and accrued money. For a child with less great earnings potential , this makes far more sense. My DD has a flat in London zone 1. She took out a loan.

It does affect mortgages as they look at affordability and an extra 9% tax reduces ones income.

You could argue it should be £30,000 which is an average starting grad salary.

£30k is not the average graduate starting salary - it’s skewed by the top 100 companies that pay more and compete to hire the top grads. The actual median grad salary is more like £25k (reflected in nursing and teaching grad salaries).

www.graduate-jobs.com/gco/Booklet/graduate-salary-salaries.jsp

It's interesting to see how they do higher education in America. I'm not a fan, but a LOT of students get substantial scholarships and bursaries. For some reason these are far less of a thing in the UK, despite being quite common at private secondary level. The other thing is that there's a huge difference between the cost of your local bog standard college, and the well known universities. Cheap colleges in the US are cheaper than bottom of the league universities here. In the UK you pay the same, more or less, wherever you go. I think that lower league universities should reduce their fees to something less off-putting - maybe £5K a year.
So there is an attempt to level the playing field to some extent in the US, whereas here everyone pays the same upfront (barring the occasional small university bursary), and people who have to borrow the full amount, and then get a mediocre job, end up paying far more than the well off do, due to the ridiculous interest rate.

@Theendoftheworldisnigh - So would you be happy for universities to double their tuition fees so they can give full-fee bursaries to half of their students? That's how bursaries work.

I'd prefer to see an income tax based system, so that those who do manage to get well paid jobs pay back more than the cost of their degree and those who don't pay back less. I think that's particularly important with our current system, where universities at the bottom of the league tables charge the same as those at the top, despite very different provision and outcomes.

I don't think Gov ever envisaged that all universities would put their fees straight up to £9k.
I think they thought there would be more of a sliding scale and market forces would play a part. That clearly didn't happen!

@Theendoftheworldisnigh

I'd prefer to see an income tax based system, so that those who do manage to get well paid jobs pay back more than the cost of their degree and those who don't pay back less. I think that's particularly important with our current system, where universities at the bottom of the league tables charge the same as those at the top, despite very different provision and outcomes.

You want high earners to pay back more than the cost of their degree? Why?!

To fund the degrees taken by people who don't earn enough to pay the full cost back.
The redistribution of wealth is what income tax is about.
This should of course be accompanied by sensible decisions about how many university places the country needs.

At the moment, those who get a mediocre job and work in it for 30 years will have to pay back hugely more than the cost of their degree. The interest rate really punishes the less well off.
Those who are funded by mum and dad, or who get high earning jobs, are massively advantaged in comparison.

@wooliewoo

I don't think Gov ever envisaged that all universities would put their fees straight up to £9k. I think they thought there would be more of a sliding scale and market forces would play a part. That clearly didn't happen!

They really do believe in market forces, don't they?

What happened there, did all the Vice-chancellors get together and decide they would all charge the £9,000? Like a cartel or something?

[quote NoNotHimTheOtherOne]@Theendoftheworldisnigh - So would you be happy for universities to double their tuition fees so they can give full-fee bursaries to half of their students? That's how bursaries work.[/quote]
Most of the US scholarships are funded by private organisations so not a cost to the University. My nephews have partial scholarships at Sanford and Chicago.

The cost of the best universities in the USA exceed $20,000 per semester. There are 8 of them. Degrees from the best universities here are a bargain.

When degrees were fully paid for by taxation, far fewer people went. We don’t like that model either.

My DD has a mortgage and her grad tax was NOT taken into account. She got 4 times her gross earnings.

What the government should do is provide student-style loans for wannabe electricians, plumbers, lorry drivers etc. There aren't the apprenticeship schemes around that there were years ago, and there's a real skill shortage - yet all these trades can earn far far more on (or even before) qualification than a mere graduate.

a ‘mere graduate’

I totally agree that apprenticeships need to be aimed at 18 years olds. That won’t help hgv driver shortage much though! However we need a change of emphasis away from degrees and loans. We need a proper evaluation of what we need and what courses we need to provide it. That should cover all topics in the arts and nothing should be devalued but the quantity is too high at the moment. And the expense.

@wooliewoo

I don't think Gov ever envisaged that all universities would put their fees straight up to £9k. I think they thought there would be more of a sliding scale and market forces would play a part. That clearly didn't happen!

If the govt didn't think that would happen, then they're stupid. It was entirely obvious and foreseeable to the man in the street that Unis would charge the full whack.

@Ariela

What the government should do is provide student-style loans for wannabe electricians, plumbers, lorry drivers etc. There aren't the apprenticeship schemes around that there were years ago, and there's a real skill shortage - yet all these trades can earn far far more on (or even before) qualification than a mere graduate.

Yep, indeed. Student loans on similar basis need to be made available to those, especially older workers rather than school leavers, who want to take other kinds of job-related training, such as HGV drivers, electricians, plumbers, etc. Loads of people would like to retrain in their 20s, 30s, 40s but can't afford either the course costs nor the time off work.

What really gets up my nose is that all the politicians (who predominately come from extremely rich backgrounds) got free education at university
The 6% interest doesn't go to the university - which is exactly where it should go & college course & the government has cut funding by 50% to many courses check ucu@ucu july 20 they tweeted in detail & the students most affected will, of course , be the poorest ie things like hairdressing amongst many many others