Student loans - please can someone do the maths for me

[JuneSoon]

DD started uni in September 2023.

So far she has borrowed £9,250 for tuition and, say, £4,600 maintenance loan.

How much does she owe now and how will that amount grow, i.e. compound interest/inflation etc?

TIA

She should have a SLC online account where this information is clearly displayed.

Interest is compound and rates are variable as linked to inflation, so best to look at the online account.

The interest rate changes regularly so this calculation is not easy to do.

In addition the rates are different depending on her terms and conditions - so if her loan was ten years ago it's different to now.

www.gov.uk/government/publications/payroll-technical-specifications-student-loans/collection-of-student-loans-from-6-april-2021

so if her loan was ten years ago it's different to now

The first line in my OP says she started Sept 2023.

I'm looking for help in understanding how inflation and "compound" affects the loan.

On here, Mumsnet.

It’s meaningless how much she owes though. She will only ever pay back a set monthly amount in line with her salary. The loan isn’t classed as a debt in the same way personal loans and credit cards are. For example, the latter will affect how much mortgage she can borrow, but the amount outstanding on her student loan won’t have any effect at all.

Sept 23 start would be a plan 5 loan, assuming you are in England. Current Plan 5 interest rate is 4.3%, RPI based, and due to be updated in September- ie this month.

Thanks @boys3

So 9,250 + 4,500 = 13,750 @ 4.3% = 569.75 in interest (I know this isn't the exact amount as loans paid in installments therefore interest accrued is less than this amount).

So 2nd year would be 13,750 x 2 = 27,500 + 569.75 = 28,069.57 × 4.3% = 1,229.48 interest.

Obviously, % may vary depending on inflation but am I along the right lines here?

Yes that's right.

But as PP has already said, this isn't a loan in the traditional sense. She'll pay an amount back for 30 years, depending on her salary. She might well never pay it all off, so the total amount is irrelevant. Best just to assume it's an ongoing "tax" for 30 years.

Roughly right idea, yes, that's how compound interest works.

And you're right to be concerned. Despite people saying they only pay x% of earnings over £y, "middle" earners pay more than lower earnings and higher earners. The lower earnings never pay anything. Higher earners pay it off quicker so the compound interest doesn't build up as much. "Middle" earners end up paying it for the full duration, but never pay enough to pay it off, so whilst they may have paid off the initial borrowings, they never pay off the interest and end up paying more than those earning a lot less or a lot more than themselves.

Obviously, nothing you can do about it. Rules are rules. But you're right to want to know the detail and pass that information onto your child. When they're in the working environment, they may be able to make "decisions" to either pay it off sooner and thus reduce interest building up (that is if they're going to be paying it for the full duration), or choose to reduce their working hours etc, so as to never earn enough to pay any of it off (goes without saying a higher paying job is better for lots of reasons, not only paying off the student loan earlier!).

It doesn't matter because the amount she owes has no bearing on how much she pays back each month. She could owe a million pounds and this wouldn't change.

If she's on the latest 'plan' she'll pay back more each month and for longer than the previous one, thus increasing the chance she'll pay back in full, but there's absolutely no point trying to work out what she owes now or how this will change in the short to medium term.

Read what Moneysaving Expert says on student loans, making sure your looking at the information for the right cohort.

It's not quite true to say it doesn't impact how much she could borrow for a mortgage. Although the amount outstanding is not treated as debt, student loan repayments are taken into account in terms of monthly outgoings. As the repayments reduce disposable income, the amount able to borrow can be reduced.

@JuneSoon except the interest rate for all of 2024 until this month has been over 7.5% and up to 8%. I don't know about 2023.

Though worth remembering plan 5 is 40 years rather than 30.

‘Can be’ being the operative phrase there. In reality it’s very unlikely that the deductions themselves would actually affect the mortgage amount offered as it goes off multiples of salary. Have a read on MSE for further explanation ☺️

Worth bearing in mind interest accrues daily, not annually so it is a teeny bit more every day.

Usually they don’t make any repayments until the degree has ended and work has started so until then, it rises every day.

If you stick in low paid jobs you never pay it back, if you go into a high paid job like city finance you pay it back in a few years, if you go into teaching, nursing etc you can spend 40 years paying it back due to interest and slow salary increases.

Nothing - until she's earning more than 25k per year she owes nothing..

after that she owes 9% of any earnings over 25k for 40 years.

Beyond that ignore the total number or interest (unless she's going to be a very high earner)

Treat it as an extra tax not a loan......

it's meaningless - the total amount for the majority of students is utterly meaningless she'll only ever pay 9% of any earnings over £25k.

here is a really good podcast to listen to...

Ignore the total, ignore the interest, and enjoy the university

Martin Lewis BBC Podcast

40 years now form 2023....