Please could someone explain the student loan to me

[InaMuddle2]

GOV.UK says

we'll charge you interest on your loan, as soon as we make your first payment. While you're studying, we'll charge you interest. Your rate is linked to the retail price index

So how much is the interest rate?
If DD gets £9250 plus £4650 = £13,900 how much interest will accrue over 4 years of study.

Then when she's working and earning above the £25,000, she'll pay 9% of her income (over threshold) and interest will keep being added on. For 40 years. Is that right?

i believe the interest rate until the April after DD finishes her course is RPI +3%. RPI is a measure of inflation so will vary over time.

it might be less daunting to think of repayments as a graduate tax which she’ll pay for some or all of her working life. She might never pay it off.

Plan 5 loans accrue interest at RPI only, so effectively the marginal rate of interest is zero and they pay back in real terms what they borrowed. Justbetweenus is quoting plan 2 rates.

https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2023-to-2024

So the interest they're paying isn't set. It's RPI? How do we know what that is? Could it soa

RPI is measured monthly. You can google it. No one knows what it'll be next year let alone in 40 years time! Do you know how much a loaf of bread will be in 40 years?! The point is interest won't be higher, whereas now it's RPI plus 3% so the real cost of the loan increases each year.

Don't worry too much about it. I graduated in 2017. Started earning the threshold in 2019.

The amount owed has gone up more than I've paid off 😂 It'll never get paid off.

With regards to the maintenance loan I have been advised that even if you don't need the loan it is worth taking it as it is one of the cheapest loans you can get. Is this true or will it just be extra debt?

I'm still in a muddle. Quick Google suggests RPI was 13% at one point this year. So that's the interest ratecon the Maintenance Loan?

It's the RPI in April (I think). In actual fact the interest rate was reduced for plan 2 because RPI was so high!

But yes it could be that high for a year. Unlikely we'll have long term inflation at 10+% though. Frankly if we do your offspring will have far bigger things to think about.

Read Martin Lewis (or encourage your child to). https://www.moneysavingexpert.com/students/student-loans-2023/#interest

The way we and Ds looked at it was he needs the degree as it will give him far more job opportunities and he knows he has to pay back what he borrows. He cannot do the degree without taking out the tuition fees and minimum maintenance loan. He has already looked at graduate jobs in his field which will see him start on well over the £25k you need to be earning to pay it back. He sees it as a tax, has already run the payment plan through a salary calculator so knows how much it will take out of his salary. Ds2 will be going next year and will be on a different plan, but again, needs the degree for jobs in his field.

I had to take on student loans in the 90s. Education isn't free sadly.

As @IDontWantToBeAPie has noted the student loan might never get paid. This isn’t that it will be an endless debt but that it lasts a maximum of 40 years.

If DD earns enough of a salary then ultimately she will pay off the loan. If she never owns above threshold then she will never need to pay any of it.
Generally people will be somewhere in between partially and fully paying it off.

Rather than a classic loan debt it’s government/tax payers funding further education up front and the students then paying an extra ‘tax contribution’ back when they are earning.

Martin Lewis has said that 55% will repay the loan for plan 5 unlike the plan 2 which was 20%. Another thing to remember is that the terms are not set and any government can change these. Thing is, if DC want to go to university then unless someone else can pay for it all, they don’t really have much choice.

@InaMuddle2
Dont forget part time working will reduce the “grad tax” payments if she ever does that. It’s just a monthly sum you pay as a contribution. Higher or lower or nothing according to earnings. If the loans are needed, they are needed. They are still good value if you need a degree.

Can someone advise whether the student loans can be refunded at any point in time ? even after the first year ? thanks

"Just" and extra 9% tax over £25k like that's nothing at all!

If they suddenly said there was a basic rate income tax hike of 9% the word just wouldn't be bandied around so lightly

What do you mean refunded? Once you have received your maintenance loan you've received it. Or do you mean repayments? Yes repayments can be returned if it turns out you didn't earn enough to make those repayments.

Well graduates have been paying it without a fuss having never known otherwise for years, so you make a moot point.

(And obvs don't remember when the basic rate of tax was 33%!)

as others have said: the loan is essentially a tax — ie regardless of how much you have borrowed, and regardless of how much interest has accrued, you (the borrower) will pay - fixed percentage of your income over a threshold amount each year for 40 yr, or until loans (+ interest) is paid. After 40 years, debt is cancelled even if not fully paid

Actually I do. But am also fortunate enough to be in a position to fund my kid's uni fees etc for them precisely so they don't have to pay. I also have plenty to say about funding of fees where you can v deposit saving etc but that is for another time and totally get that if it is the only way someone can access higher education they should still take the student loan. It doesn't mean there shouldn't be a push back against the high interest paid.

Iamsodone, yes you can repay it. My son's friend graduated in 2020 and his mother just got her tax free pension lump sum and paid off the entirety of the boy's student loans.

I did the other way round - I paid the fees and rents at university for the children as it was about the same as the day school fees I was already paying so I just extended the pain.

As to the rate it is complicagted. eg a teacher on £30k for life might pay 500 a year on £50k loan which is 1% (a very very cheap rate). Whereas were they to become a super head on £100k they might be paying £7k a year back. 4 of my 5 children are London lawyers and I knew that kind of higher income was likely so was happy to pay the fees although 2 children's were £1k a year plus maintenance, next one £3k plus maintenance and last two were £9250 a year plus maintenance. What I Had started for the £1k fees one I did think I should finish for the younger 2 not least because my parents paid for our education and after that it was up to us which seemed a good principle. Of course mkost parents cannot afford to pay the fees so my points are irrelevant.

if you have a family culture where women serve at home, work part time and are housewives etc then for the girls it may be best not to fund the fees or if you think it is likely your child will do voluntary or charitable work or try to make it as an actor (ie be a restaurant worker for life) then may be best not to pay the fees as they may never earn over the threshold.

yes @titchy can it be repaid, and at any time of our liking ?

Thanks very much Xenia.
I think DS will earn a high salary and we also have a culture where parents just pay for their kids education, but for current circumstantial/punctual reasons it may be handy to borrow that money now, plus it seems a good occasion to have kiddo "on the hook" a bit. so borrowing and repaying quite quickly might fit multiple criteria above.

yes @titchy can it be repaid, and at any time of our liking ?

Yes it can.