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).

Google problems with Erudio. It was in the news about 10 years ago how badly this was all dealt with when they sold the last chunk of loans to a private debt collection company. Who then went around threatening people with prosecution for non-payment even though they had deferred payment as per t&c of their loans.

@mumsneedwine The HEPI report someone linked to above suggests 82% of borrowers will repay their loans in full over the 40 year period which we have now for Plan 5 loans. This suggests that there will be very few students who never pay back any of their loan.The Plan 5 loans with the lower payment threshold and longer repayment period were designed to shift the burden from the general taxpayer to the student.

Which in reality is exactly how it should be. You take on the debt you pay your debt.

However what that should then mean is that potential students think far more carefully about whether a degree is even needed for what they want to do. Too many go for the sake of it because they see it as just an extension of school. We don’t need this many graduates and the reality is that the jobs don’t actually feed degrees. I have two extremely successful professional colleagues in very senior director roles. One in a large logistics company earning circa £180k plus benefits and another one in a university earning circa £130k. Neither have degrees.

@user09876543 assume you don't want doctors or nurses any more then. Have to have a degree. Have to get into lots of debt, have to start on not v good salaries. Currently both face prospect of unemployment in this country as not enough jobs.

I agree, pay your debt, but justify a 7% interest rate when base rare was 0.25%.

Borrow £60,000. Repay £200,000. Fair ?

I didn’t say that. I said lots of jobs don’t actually need a degree so kids should think more carefully about taking in astronomical debt. Some jobs however do require a degree or some sort of vocational training.

im no expert on nursing but a degree for nursing is a fairly new thing. I’m not denying it needs vocational training but this doesn’t need to be in a traditional university term structure with long holidays etc. why can’t it be year round and thus shorter?

No, completely ridiculous hence the post. Students don’t think properly about what they are doing. Partly as a result of the Martin Lewis stupid mantra which has been mistakenly embedded in peoples minds as “you’ll pay back less than it costs” which isn’t true at all for most.

Completely agree - Martin Lewis has spent many years encouraging people to think they're unlikely to pay the loan back therefore shouldn't let the idea of debt put them off going to uni. He is a journalist, not an economist or a financial advisor. He does update his advice, but many people (including teachers advising students) won't pick up on the change.

He should be encouraging young people to consider apprenticeships.

There are now degree apprenticeships for nursing.

Non of the jobs I’ve had have needed a degree. In fact my degree is totally irrelevant. However they’ve all requested ome except one . The exception to this rule was the minimum wage one I got when I first graduated. It’s really easy to say kids shouldn’t see it as an extension of school when it’s not you who’s risking getting stuck at entry level. Not every company lets people work their way up with just grafting anymore.

Disingenuous.

Though it’s not a conventional loan in any sense, and fairly basic maths, given its income contingency, is pretty much all that is needed. Plus an awareness and understanding of inflation. And of course and even more so now a concept of time, when now faced with making a contribution over 40 years. I’m not sure how many current undergrads really consider that they may well still be making monthly payments when they reach 60. Then again with all that housing wealth that will be passed down to many of them at some point………..

"Though it’s not a conventional loan in any sense, and fairly basic maths, given its income contingency, is pretty much all that is needed."

Yes, not a conventional loan, but also not a conventional tax - the experience is unique to people's circumstances. Martin L has erred on the side of evangelism by encouraging almost everyone to think they'd be better off taking the loan than either a) paying cash or b) exploring other routes to a degree. He hasn't encouraged caution. His aims were to encourage young people from less wealthy backgrounds to not be put off doing a degree, which is laudable, but not necessary helpful to the national economy when so many do degrees that aren't in specific demand by employers.

I've seen posts on facebook where people are celebrating because they've been given a higher loan than they were expecting and are saying they can buy more clothes etc. It's like people still think it's a grant.

Nursing and midwifery students don't have the long holidays. Not sure on other degrees eg physio, paramedics etc.

Apprentice routes slow to get off the ground and will be very competitive.

Well yes the government does assume that parents love their children and will support them to whatever extent they are able. So on that assumption they provide more money to students from families who are least able to support their children.
So different amounts of money make sense - but I do think it should be obligatory for all parents to make up the difference between what their child is allowed to borrow vs the maximum amount that the poorest get

I imagine nursing is expensive to deliver, so is probably one of the degrees that is being supplemented by the fees of humanities students.

I do think nurses, doctors etc should be able to reclaim their loan repayments for as long as they work in the NHS, but that means other students, or the general taxpayer, will have to pay more.

With respect though @asabug those other routes to a degree have been, and to a large extent still are, far more limited. You can evangelise about Degree Apprenticeships but like it or not there is still a huge way to go to make them a true and genuine mainstream offer. Not suggesting we should not try to get there, just that a recognition of current objective reality is needed.

however I presume you have a list readily to hand of all those unnecessary degree courses that should no longer run. Plus the economic impact of making that transition to fewer courses, students, and universities . But just haven’t shared it yet. Carpe diem!

@boys3 why ? It's fact. 5 year degrees (that result in quite useful jobs) need to borrow at least that. Some of my ex students have had to borrow nearer £100,000. At 7% interest from day 1 the total amount repaid after 30 years is approx £200-250,000.

Yes, they signed up for it. But they changed the conditions after the loan started on scheme 2. No idea how they could have seen that coming.

Rich little Johnny doing the same job repays nothing for doing the same degree. Just because he had parents with cash.

I'm all for fairness. Everyone should repay/pay the same amount, and interest on SFE should be base rate.

"Rich little Johnny doing the same job repays nothing for doing the same degree. Just because he had parents with cash."

@mumsneedwine , no, that's not fair. He's paying for it up front, with money that he would otherwise inherit and use for other purposes. Wealthier people will always exist, and jealousy is futile. If Jonny is forced to take out the same loan as everyone else, he will still be wealthier.

It makes sense for people who can pay up front to pay up front.

So birth right is still a thing. It would be fairer if everyone paid 1% extra tax for their working lives. Then having rich parents does not make you richer each month in your pay packet.

It's not jealously, it's fairness. I'd like to live in a world where everyone has equal opportunities. And many many students now can't even afford to go to Uni as the loan is not enough. Even with a job. We seem to be heading back to the 1800s with poor people being kept in their place. V v sad.

It's called inheritance, not 'birth right' and yes, it's still a thing, although the new Government may make changes to inheritance tax in their upcoming budget.

As someone mentioned above, many young people will benefit from the sale of their parents' and grandparents' homes eventually. That's what is paying for my son's degree. His not-wealthy grandmother (my mum) died shortly before he started uni and some of the proceeds of her house sale have been used to pay for his degree. Some might say he was lucky, but I'm sure he'd rather have had his grandmother around for longer.

@mumsneedwine disingenuous because repayments are income contingent. The majority will not earn anywhere near enough - even over 40 years - to repay £200,000

even with the 40 year term and slightly lower repayment threshold a £5k annual repayment would require an income just past £70,000.

but if you are more broadly suggesting that the whole thing is a bit of a mess then I’m with you on that.

The current modelling suggests 82% of students will pay back their Plan 5 loan in full (as per the HEPI analysis linked to above). The rest will likely pay at least some back as well. I haven’t found all their assumptions, but this is quite different from earlier versions of student loans where less than 50% were expected to pay back in full. Students really should be aware of this and cautious of racking up extra years at uni and taking out (& spending) maximum maintenance loans.

The lower interest rates on the plan 5 make it more likely you will reach the tipping point more quickly of paying back principal as well as interest. At that point your loan starts reducing making it less likely your loan will ever reach £200k. Earlier plans with higher interest rates and penal interest rates for higher earners caused the amount borrowed to escalate more rapidly.

.It is certainly a complicated picture with all the different loans over the years. I don't think a graduate tax is likely and if it came in what about those graduates who have paid their loans off? Some save up to pay the whole thing off quickly. Some use inherited money. My children have no student loans at all as I paid - it cost me £25,000 per twin including 9250 fees, about 7k rent, allowance etc. for the last two children per year and then I funded 2 post grad years too so we are talking about £50 x 5 - £250,000. If I or they also had to pay student loan tax that would be pretty unfair.

When I went to university I only got the tiny minimum grant - a bit like the current 4k for rent middle earners get compared with the £10k etc for the poor. My parents kindly made it up to the maximum so I could pay rent etc but I had no fees in those days. In addition in the early 1980s my father could covenant money to his adult children which could then be set against his tax for this purpose. I think that tax break stopped around mid 1980s. If I could have set that £250,000 I paid for the twins against my tax that would have been very helpful but instead there are so few tax breaks these days and for 10% of us the highest tax burden for 70 years.