Was I the only one who didn't realise what you start paying interest on your student loan from the first day of year 1 ?

[CobsNobs]

For some reason I had heard (maybe misheard) Martin Lewis saying that you don't have to worry about student loans until you finish uni and start working and in my head took that to also mean that you wouldn't start accruing interest until that time.
Obviously I was completely wrong but just in case anyone else had made the same assumption I am posting here.
My son is doing a 4 year course and will be borrowing £54k but at the end of year 4 that sum will have increased to approx £64k.
Scary!

(In my defence I am not from the UK and never had a student loan).

Thanks Op. We are also late to clocking a lot of things about Uni, student loans, accommodation crisis in various places and escalating costs.

I found the Student loan element of the BBC Sounds link below interesting.

https://www.bbc.co.uk/sounds/play/m001xdb4?partner=uk.co.bbc&origin=share-mobile

The Martin Lewis website, as you say, a great resource.

Oh yes - that interest starts mounting up immediately! And then you pay interest on the interest...

Student loans are not complicated. Anyone, especially the young person who will have the debt for most of their working life, that takes out something as serious as £50k+ debt needs to do some reading on what they are buying from the actual provider. Don’t go by what you heard,or misheard, from someone on the telly. Young people who are clever enough to be attending uni are clever enough to understand this independently and should research too before they sign on the dotted line.

it is all in the first few words of the information on the loans. https://www.gov.uk/student-finance

You start repaying once you earn over a certain amount. The size of your monthly repayments will depend on how much you earn, not what you owe.
You’ll be charged interest on the loan from the day you take it out. The terms and conditions can change.

Martin Lewis explains it all accurately on his web site. MSE. It's not a bank loan. You pay a percentage of what you earn. It's not related to amount of the loan. Maybe parents should read a bit more! Quite simply it's not debt. You earn nothing, you pay nothing! Ever.

In that sense it is a gift from hard working tax payers many of whom never got a chance to go to university to plenty of students who go for 3 years, drink all day and never work a day in their lives after. Obviously some do pay back the loan but by no means all. One chap used his loan to fund his drip to fight for ISIS even.....

Student loans are complex and I'm not surprised many are confused. While they are a 9% deduction on income over a certain level the total amount you pay back is linked to the amount you've borrowed as well as your earnings. This is especially the case now the income threshold has dropped to £25K for students from 2023 and the repayment period is 40 years rather than 30 years as was for students starting between 2012 and 2022.

The government has predicted that among full-time undergraduates from England who started uni in 2022/23, around 27% will repay their loans in full. However, for those who started in 2023/24, 61% are expected to repay their loans in full.

1. The more you borrow the higher your total loan
2. The more you borrow the more the interest grows and compounds - interest rate is currently 7.8% - capped at below RPI.
3. While many will not repay their loan in full this is not because they do not repay the actual loan amount - it is because they do not pay back the interest, or the interest on the interest.

Personally I think it would be more transparent and fairer if all graduates paid a contribution towards their uni through salary deduction. Currently those from the least well off households with limited parental finances end up paying back far more. Those who don't take out any loans have 9% more income each year over the threshold compared with their peers who did take out loans. This doesn't create a level playing field.

I’ll never pay mine back despite earning a good salary. The amount I owe goes up every year because of the interest!

I'm sorry but this is not a new thing, student loans have always had interest charged. Did you not research this before taking one out ?

Kindly - do you think about the amount you owe, as it goes up? Does it affect your life / mental health? Is it pushed to the back of your mind to be forgotten about, because you’ll never have to repay it?

Genuinely interested in your answers. Personally I think it’s scandalous, particularly the high interest rate compounding.

What blows my mind is that the amount DD can borrow is set by how much me and DH earn.
We are under no obligation to give her anything, assuming we can afford to. I can understand means testing if she is getting grants but if she is going to pay it back then why does it matter what we earn?

This is misleading. You do pay a percentage of what you earn but you keep paying it until your debt is repaid. If you don't pay the capital the interest keeps accruing and accruing and accruing and hence the rather misleading statement that "most people will never pay it off".

I don't think most people think about the fact that on a three year degree you might borrow £45k ish if youre taking the minimum maintenance loan but on the day you graduate you don't owe £45k but about £56k..

Oh no it doesn’t bother me at all. I’m so grateful I was able to do my degree, it’s made my life so much better.

I knew this OP, but I agree with you that it should be more widely known.

We are switching to parental loans for our DS after this first year (when he took the loans) and whilst he will need to pay us back he won't have the massive compound interest to worry about. But we are in the fortunate position of being able to fund this.

The per payment amount isn't related to the amount of the loan. But you'll need to make more payments if it's a larger amount, ie you'll be paying it off for longer.

It's is new. The rules changed last September. Not the fact you pay some interest but how much and when you start paying it from.

Ok thank you

Taking out a loan has always been charged interest. Do you think you get money for free ?. When and how is irrelevant, it's always known from day 1 interst is occured

You’re not alone op. Also I don’t think parents realise how high the interest rate is.

the majority of students will be paying for their loans and the rules can always change too so i suggest your student takes it out as late as possible and for as little as possible. More students should take a year out and earn some money first imo

To be fair, "hard-working tax payers", and society in general, will benefit enormously from many of those graduates who will never pay back their loans in full (teachers, nurses, etc.).

I think teachers for example could pay off the loan - it will be the interest that they might not pay off.

the interest is a shocker and I think a Tory government scandal that it’s been unchecked

It's not new.

What changed in September was how the interest was calculated, not when it started accumulating.

Because parents are also responsible for their children's education and she probably won't pay it all back. Why should the tax payer help subsidise her education when her parent earns enough to?

She is 19 and we have already paid plenty for her education up until this point and no, I don't believe taxpayers should subsidise her - if she chooses to go to Uni she should fund it and it seems to be that loans are how they do this.
Why should an adult have her right to borrow money based on the earnings of people who wont actually be paying the loans back?
Of course we will help her and might be able to pay off some loans later but we are under no obligation to do so BUT if we don't she can't borrow enough due to what we earn.

@Newgirls

It's not a shocker that 340,000 young people access a university education every year though is if? How on earth do you think the country can pay for that without a graduate contribution? Graduates mostly earn more. Not every graduate and some definitely don't but why should the lower paid pay for drama students and fine art? Or thousands of others who don't get graduate level work? If we want a huge university sector and huge numbers going to uni, someone has to pay. All political parties have expended HE. Not one. If you think Labour should shrink the sector, say so. However getting more money out of hard pressed families to avoid loans is not going to be popular.

Plus: it's a tax paid by grads when they earn money. No one ever needs to look at what they owe. More will pay it back under the new rules because it's now payable over 40 years. The least well off will actually pay more. Working part time is a good idea! For many, that's £0 contribution.