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.

@Chloemol

I agree with lower g the threshold. Kids go to uni, get a teapot degree they will never use, and don’t repay the money for three years if socialising

Yes I know it’s a generalisation but it happens a lot.

Why should there be so much debt eventually written off?who do you think actually pays for that! They borrowed, they repay. Maybe they will think clearly now about if it’s the right thing for them

It isn’t just teapot degrees that can’t pay back the loan though. Stop blaming young people.

I went to uni when fees were 9k. With the current interest rate and loans system for me to pay back the loan I need to earn over about 65k for more than 25 years, in the first 25+ years of my career.

How many jobs actually allow people to do that?

I went to Uni in September ‘98 which was first year that tuition fees had to be paid. When I graduated in 2001, the threshold for paying student loans back was £10k (although it was raised to £15k a year after I think). However my student loan wouldn’t be written off until I was 65. The newer student loans get written off after 25 years.

This is to push more people into ‘useful’ and vocational subjects.

Not really. It's the Treasury that is pushing this. It's to increase the proportion of loans that get repaid. When the cap was taken off student numbers a few years ago it was obvious that the current repayment arrangements couldn't continue indefinitely. The funding of the system was built on a certain (quite low) proportion of loans being repaid at a (quite high) rate of interest. Gideon Osborne blew this up by making an unlimited commitment to up-front funding without making the required changes to repayment arrangements, or, better still, getting rid of the fees & loans system altogether.

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

People have tried to make this clear to students & their parents since the loans system started. This is the only loan you will take out where the lender can unilaterally change the conditions, and you have no protection from consumer credit legislation and can't challenge the contract on the basis that the terms are unfair. They could increase the interest rate to 10% pa and lower the threshold to £10,000 pa and there's nothing you can do about it.

But those warnings were drowned out by the usual chorus of "scaremongering!" and "project fear!" from a million dunderheads.

The crucial question is who should be paying for people to be university educated. Should it only be people who have benefitted from going to university or should all taxpayers be paying? I think it should be the people benefitting.

If you agree that the cost should be carried by the university students themselves then it's just a maths question.

@Franklin12

I agree with it as well. Surely if you arent planning to get a higher paid role why go to university and incure the debt? Unless people are looking for something for nothing.

It doesnt penalise the poor does it because if you are under the threshold then you dont have to start to pay it back.

Like nurses and teachers you mean?

@Slayduggee but is the value and interest rate of the loan you took not also a relevant comparison ? Was a years tuition not 1k? So it was still heavily subsidised by the government.

@Slayduggee

I went to Uni in September ‘98 which was first year that tuition fees had to be paid. When I graduated in 2001, the threshold for paying student loans back was £10k (although it was raised to £15k a year after I think). However my student loan wouldn’t be written off until I was 65. The newer student loans get written off after 25 years.

It's 30years with the new loans

The loans before that (pre 2017 I think) were 25years. Those loans also had tuitions fees of £3k instead of £9k and lower interest rates. But you started paying them back around at around £20k salary.

Rather than lowering the threshold they should be focusing on increasing wages that way more people would end up paying it back. But no, keeping millions living hand to mouth makes those who earn an average amount feel better about themselves. I had to work over 20 hours a week at university (in recent years) as the 'maintenence' loan didn't even cover my (cheap) accommodation.

I think the 30years starts once your salary hits the threshold rather than straight away as you graduate.

So it's not a case of no-one who starts uni at 18 will be paying at 65. Some will and some won't.

Would be interesting to see how this impacts the average amount someone pays back.

Because someone who previously would have had 30years of 9% at over £27k, might now have have 10years of 9% at under £27k and then only 20years of 9% at over £27k.

So surely middle and higher earners would pay a bit less overall, but lower earners would pay more.

I think the 30years starts once your salary hits the threshold rather than straight away as you graduate.

It starts in the April after you graduate.

The threshold is very high currently, I believe the only reason it is this high is because the Lib Dems negotiated it when they had to spectacularly U turn to raise fees when part of the coalition government. It seems very odd to me that I pay a lot more a month on plan 1 than someone with much higher debt than plan 2, that's not coming from a place of bitterness but just realism that the current system doesn't seem very sustainable, no point having student loans if a huge chunk of it won't be recouped.

On the "interest rate" point it is quite complicated. If you earn £30k and pay on earnings over 27k at 9% (the rate you pay back not linked to the interest rate being applied to the capital sum outstanding- you pay 9% x £3000= £270 repayment a year; so let us assume the loan is £50k
50,000 x 0.5% is £250.

So the interest rate a worker on £30k would be paying is 0.5% of £50k (very very low because of the way the 9% works). If the worker were on £100k - a lawyer, say, in London - they pay 9% x £73k = £6570 loan payments a year which is about 13% effective interest rate on £50k of debt (although I presume on those salaries you are paying some capital back each month too).

So surely middle and higher earners would pay a bit less overall, but lower earners would pay more.

The U.K. loan repayment system favours low earners and high earners at the expense of middle earners.

Low earners are either below threshold and pay nothing, or just above the threshold so the repayments are calculated against very little income so these too don’t even pay back the principal amount that was originally borrowed.

High earners are well above the threshold and so their repayments are much larger. This means they are paying principal plus interest and often pay it in full before the 30yrs are up. They pay interest, so pay back more than they borrowed.

But middle earners are moderately above the threshold, but while their repayments cover the interest accruing, it barely if at all touched the principal amount. So they are stuck paying the full thirty years. These earners end up paying more overall than the high earners and will often pay back 3x what they originally borrowed and still have a balance to be written off after thirty years.

@SickAndTiredAgain

I think the 30years starts once your salary hits the threshold rather than straight away as you graduate.

It starts in the April after you graduate.

Oh, that must have changed as well with the newer loans.

If that's the case that's a bonus for me because it means I have less years left than I thought

But the fees aspect is in my experience not something many undergraduates even give half a thought to - they know a little bit will be deducted from the pay packet eventually but I’ve never heard it mentioned as a reason not to pursue a degree

Students I teach, especially those form low income families and/or who are first generation applicants mention this literally all the time...

Plan and the very very high earners are a 4th category - my five children have no student loans as I paid the fees/maintenance. In a sense that saves the state well over £100k but it still advantages my children.

What on earth is a teapot degree?!

@ItsNotMeAnymore

The crucial question is who should be paying for people to be university educated. Should it only be people who have benefitted from going to university or should all taxpayers be paying? I think it should be the people benefitting. If you agree that the cost should be carried by the university students themselves then it's just a maths question.

Yes. Personally I think university should be free to students. Subsidised entirely by the government and paid from a mixture of corporate tax and general taxation. The corporations benefit from an educated workforce, most actually demand their employees have degrees so they should be contributing to the cost of educating future workers. Some general taxation should be used as well for the research that universities do, as their research benefits everyone, even the poor who never went to university. There should also be maintenance grants/living allowance for poorer students.

I agree with it, but not retrospectively. I don't think it's fair to change the terms of the loan that was agreed under other terms. But I do think it needs to be changed so not as much is written off.

@Xenia

Plan and the very very high earners are a 4th category - my five children have no student loans as I paid the fees/maintenance. In a sense that saves the state well over £100k but it still advantages my children.

True, but not every family below very very high earners has fallen for the Martin Lewis rhetoric. My DB and his family are in U.K. they are middle earners but have saved since birth to pay their DDs university fees. Those DDs could go on to be low, middle or high earners but they also (like your children) will have no student debt. So I agree there is a 4th category of graduates that are debt free, but not all are or will be very very high earners.

I also believe higher education benefits our society and economy more than just the individual and the cost should be shared not just placed on the individual.

Interested to understand your perspective on this @ItsNotMeAnymore

Having well educated citizens benefits the whole of society, why on earth would a country not invest in its young?

So many people really don't seem to buy into this philosophy sadly.

I was never happy with the rhetoric around it being a "graduate tax".
That would have been fine back in the day when being a graduate generally meant going into a career where, after the 1st few years, you would earn over the average uk salary for the rest of your working life. Some professions would earn significantly over but even teachers, social workers etc would benefit. So there was a definite financial benefit to the individual as well as a societal benefit.

However the issue now is that there are many graduates going into careers where the average salary for their industry means they will struggle to reach the uk average and therefore never feel the financial benefit but will be left paying off a loan they took out age 18!

It’s difficult to get out of the cycle though @PlanDeRaccordement, it’s going to be difficult to save for my DC to go to university when I’m still paying for myself. My parents saved for me but only managed about £3K which was swallowed up pretty quickly since almost my whole maintenance loan went on accommodation (the cheapest one on offer).

One thing I don’t understand is why there are not more financial products out there to help parents plan? I can borrow on my mortgage at 2% so why can’t students borrow from a high street bank instead of tied into 30 years of dealing with the student loan company. I’ve always agreed with Plan’s argument and also think Martin is wrong but I understand why he explains it the way he does.
I am a middle earner but have saved almost enough for my dd and will pay her fees myself. I am about 10k short though and I have 2 years to save this for her third year but if I don’t get there I’ll just take a loan to pay the rest. That way I can choose my own terms and can overpay and can clear it as quickly as I possibly can.