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).

".. when they sign up to a degree do they realise how much that will be per month later in life when they're strapped for cash and have lots of outgoings?"

Certainly the ones that do realise this are more likely to look at alternative paths like apprenticeships.

My DD borrowed £55,000. By the time it gets forgotten after 30 years she will have repaid about £200,000. She's a doctor. Had no choice but to take the loan if she wanted to become one. But hey, she now earns £17 an hour rather than £15 since their whopping pay rise (which is NOT 22%).

I'd be wary that anyone is going to pay it off tbh. You'd have to start out earning high

I did dentistry and by the time I'd qualified, and done my foundation year plus a couple of other training years my loan had increased quite dramatically. I now pay about the interest off each year. I won't ever pay my loan off but will pay quite a significant amount. By the time it's wiped.

I also have friends who's parents paid their fees and therefore will never have a loan and will be a good £300+ better off each month.

This is the thing with any well paid career, there's usually a few years at the start that aren't that well paid, with the interest what it is the loan value will sky rocket, meaning that you will never pay it off, basically the government maximises the amount you pay.

Particularly with careers such as medicine where the government controls your salary. For the first few years, this is low so you pay less than interest and the loan value increases. Even though you may pay off the value the starting salary ensures you pay your loan until its wiped.

It does make me angry, people just 2 yrs older than me essentially earn an extra £300+ more than me a month doing the same job, people born to richer families earn £300+ a month more. It is not a graduate tax

plan 5 student loans (after April 2023) are now not written off until after 40 years.

"It does make me angry, people just 2 yrs older than me essentially earn an extra £300+ more than me a month doing the same job, people born to richer families earn £300+ a month more."

So you're angry that other people are wealthier than you? What's new? If you think that way, you will never be happy. Instead, be grateful that you're wealthier than many other people, and plan the future cautiously so your own children can benefit from your wisdom.

There will be far more degree apprenticeships in future, and that is a much more sustainable way of upskilling the workforce than 50% of young adults going to university full time and using the gig economy to make ends meet.

@FiveTreeHill Completely understandable to be angry. It is a very inequitable playing field. Would perhaps be better is no one paid fees and all paid a (lower) graduate tax. Then all would contribute to Higher Education funding irrespective of their parents' wealth.

I do think the level of interest is iniquitous especially for those on long courses such as medicine where the interest racks up before they are even qualified.

Currently the interest rate is 8% for those who've taken out loans from August 2023. The student loan guide says, "The interest rate on your loan will never be higher than the interest that is added to commercial loans, such as a credit card or a personal loan that someone might use to buy a car." We all know those are super high rates.

I'm not suggesting a solution, just suggesting that degrees generally aren't necessarily worth it if you're going to get a mid range salary job. And pointing out that a system where you in fact owe more than when you started is madness!
I did my degree in MFL - I could have studied in that country for £800 a year. I hope we are now telling students the range of opportunities available to them, rather than just putting them on the path to UCAS.

Sadly I don't think all schools are doing that. Many teachers are not up to date with the rapidly evolving apprenticeship landscape, and still like to boast about the number of university places. I'm a school governor, and do my best to challenge the Head on this.

It's the same system as Australia but they call it a Contributory Grant there, which is clearer.

@Juja The Plan 5 interest rate is currently 4.3%, rather than 8.1%. (Which it was indeed in the previous 12 month period).

The thing that perhaps should annoy people is that their repayments are covering the cost of writing off other students' debt. However, it is quite simply the inevitable cost of expanding the university experience to more than 50% of young people, many of whom will never get a job that requires a degree.

Thanks - yes my error - it has just dropped

@Goldenmemories that is really bad if UC works that way with student loans. They penalise students by taking their loans into account as income when calculating UC. Either they should acknowledge the payments going out if they recognise payments going in or they should ignore both. Not hammer you at both ends!

Although the university experience has not been expanded to 50% of young people @asabug . I take your very valid points on degree apprenticeships. However the 50% figure is both widely misunderstood and then used in a misleading way.

Narrowing our definition of young people UCAS figures show for those leaving college / sixth from we’ve never been remotely close to 50% going to University. Though London is a different story again.

Well, yes, like all stats it probably depends on interpretation. This 2019 BBC headline was memorable: https://www.bbc.co.uk/news/education-49841620.

But the latest Government info from the House of Commons library says "The higher education entry rate among UK 18 year olds increased from 24.7% in 2006 to 30.7% in 2015 and peaked at 38.2% in 2021. It fell back to 35.8% in 2023.

Though perhaps more memorable for journalistic ineptitude at the Beeb more so than anything else.

https://www.hepi.ac.uk/2019/10/09/its-not-yet-true-that-half-of-young-people-go-to-university/ This from around the same time is perhaps more enlightening. But makes for a less exciting headline.

I think a lot of people older than my generation can be quite arrogant about it, but probably wouldn't be so if an extra 9% of all their earnings (or 15% with a post graduate loan) left each month. I would prefer a lower graduate tax for all over a loan but I also think that jobs such as nurses, teachers, doctors etc. that are mandatory degree educated and very necessary shouldn't have to pay more to do their job. The country benefits from training people into these roles. Especially roles such as nursing which did not use to require a degree, and used to be funded.

And whilst I did understand what it was when I took it out, I was sold it as likely being able to pay it off based on my career, you won't pay much off each month and I also distinctly remember being told it would come out before tax which isnt true. Again maybe I should have done more research but I was 17 and actually im not sure I fully understood the reality of £300ish pounds a month.

Again the concept of "you should know what it means when you take it out" benefits students from better educated backgrounds and disadvantages students who's parents cannot advise

Don't get me wrong my degree has definitely benefitted me and I don't regret going to uni, but I dislike the attitude that many people who don't have such a heavy student loan burden have

A 1% tax on all graduates for their whole working lives would make more money. And not be as noticeable in the pay packet. And fairer as everyone pays it, so wealthier kids don't get yet another advantage over poorer ones.
Not sure why this is not implemented

There's lots of online speculation about what the new Government will do. I believe they've said they will make it "fairer", which could mean anything, and there are no timescales yet.

This wouldn’t come close to raising the amount of money needed….

@north51 it will raise more than the current system. Can't remember the exact figures but it's about 3x as much - everyone pays regardless of income and it's payable your whole working life.

The Higher Education Policy Institute (think tank) has published what it says is the only cost-neutral proposal: https://www.hepi.ac.uk/2024/09/26/undergraduate-fees-revisited/

It involves graduates paying more.

Where do those figures come from? Do they cover tuition fees and maintenance or just tuition? What do you do about the people who already have loans or have paid the loans off?
Were the figures calculated compared to the plan 5 loans where far more people are expected to pay off their loans?
Eg If your university experience costs £60k (£10k fees and £10k living costs for 3 years), you would have to have average salary of £150k pa for 40 years to pay enough in tax at 1% and that’s assuming you pay 1% on your entire income ie no personal allowances. This is just a back of the envelope calculation as it doesn’t assume any interest cost for the govt but I can’t see how it would even match the current system let alone raise 3x as much?

The reason govt didn’t go down the tax route when student loans were first introduced was for accounting reasons, but if the savings were as you suggest that seems very short-sighted.

@north51 lots of students never pay any of their loan back - they never earn enough. And most won't pay it back after the 30/40 years as interest accrues so fast. The idea of a tax was suggested but was deemed unpopular (with richer students and their parents ?).
There is an LSE study somewhere but not sure where it's found now. But 1% on all earning for a whole working life made more than the 9% over the threshold for 30 years

ifs.org.uk/articles/progressive-graduate-tax-after-all

Thank you. That’s very interesting and contains lots of new ideas.