Why are student loans set above base rate?

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Just that really. Why are student loans set above base rate?

The company who runs them (or the government - I don’t really know how it works) are making a profit from them. And continuing that profit for the decades it takes to pay them off.

I guess it’s because some of them won’t be paid off, so the ones who pay them for years are subsidising the ones who don’t ever earn enough to pay?

Admin costs of running the loan system?

Because the government sold them off to private companies who want to make a fat profit from them.

I guess it’s because some of them won’t be paid off, so the ones who pay them for years are subsidising the ones who don’t ever earn enough to pay?

I think it's probably this. Such a low % of people ever pay them back in full. Of course, one of the reasons is because the interest is so high their repayments don't even dent the original loan....

But yes, student loans are a rip off

Student finance changed last year so that the estimate is that 80% of students will pay off loans in full, rather than the previous 20%. (Loans get written-off after 40 years not 30, and the repayment threshold changed.) The current plan is "Plan 5" (which succeeded Plan 2).

www.gov.uk/repaying-your-student-loan/what-you-pay

Same reason credit cards and payday loans have sky high rates, because the risk that they are never paid off is high.

I bet if they reduced fees but set repayments at a flat £200pm from graduation people would think a lot more carefully.

Looks like interest rates on student loans are currently between 4.3% and 7.3%, which is ridiculous when you think you can get a mortgage for less than 4%. The mortgage companies are still making a profit at 4%.

There is always a lot of talk about how many loans are never paid off, but surely that is at least in part because the interest rates are so high. As a PP has pointed out, if the interest is higher than the repayment amount then they have them over a barrel. Like the payday loans where it’s structured so that you can never pay it back.

Should we really have a private company, with a monopoly, making profit from students? And by definition that profit is coming from the poorer students, who have the most need to take out the loans.

Should we really have a private company, with a monopoly, making profit from students? And by definition that profit is coming from the poorer students, who have the most need to take out the loans

No we absolutely shouldn't.

Fortunately we don't.

If you want to try and find a commercial lender who will lend £50k at cheaper than SLC rates, to an 18 year old with little stable employment history and no collateral, feel free.

Plan 5 loan interest is RPI. So the real value of the loan does t increase over time.

TL:DR - your entire OP is factually incorrect.

I’m very open to other points of view and more information on it.

So it’s not a private company and they don’t make a profit? I admit I just assumed it was, as did another poster.

The “little stable employment history and no collateral” doesn’t really come into it, does it? The repayments are deducted from wages. I would expect if other commercial loans repayments (e.g. someone mentioned credit cards) were deducted from wages the risk, and therefore the interest, would decrease.

And really my point is that surely it shouldn’t be a commercial lender. So I have no interest (haha) in finding another one.

Plan 5 loan interest is RPI. So the real value of the loan does t increase over time.

Sorry, I missed this part. Surely that only applies if earnings also increase with RPI.

The real value of the loan still isn't increasing. It might be that the real value of your wages is decreasing, though!

On a 50k salary
and three years of tuition plus maintenance (so around £47k borrowed)
the interest added each month is more than the 9% earnings deduction
so the loan is increasing in value over time

So it’s not a private company and they don’t make a profit? I admit I just assumed it was, as did another poster.

SLC is Government owned.

The “little stable employment history and no collateral” doesn’t really come into it, does it? The repayments are deducted from wages. I would expect if other commercial loans repayments (e.g. someone mentioned credit cards) were deducted from wages the risk, and therefore the interest, would decrease.

Do you really think a commercial lender would lend if they could only take repayments from wages if those wages were above a certain amount? With no guarantee that the lender would pay back anything? There's a reason there are no commercial lenders you know! (Fun fact - back in the day Gov tried to persuade banks to loan the money. They wouldn't touch it with a barge pole, even with Gov guarantees - hence the SLC was born.)

Whilst SLC is government owned, the loan book for at least 2 plans have been sold off to a private company. This must be factored into the interest rate in some way.

There won't be any more loan sell-offs. The way they were recorded on Gov balance books (as an asset rather than liability - yes it was a total fudge) has now changed which ensures selling off is no longer an option.

I was astounded when I first heard about the accounting mess with Plan 2! I think that Plan 5 is pretty reasonable as these things go. The real problem for universities and for students is the tuition-fee freeze, but that's another story.

The real problem for universities and for students is the tuition-fee freeze, but that's another story.

Absolutely! And that the maintenance amounts haven't kept pace with inflation.

And the issue of the student fee freeze has just been exacerbated by the reduction of international students by restricting visas. Clever move!

The thing that shocked me was that interest is added from the day that the loan is taken out so even if you only take the fee loan the money you owe by the end of the first year is more than £9250. Don't know how it's calculated though. The interest rate this year I believe is 4.3% but since it's based on the RPI that could increase next year.

I'd love to know if the interest charged is compound or not but can't seem to find an answer to that anywhere.

It's all a bit concerning to me.

Repayments are not based on the amount borrowed on all the recent loans.
They are fixed at 9% of wages over the limit.
Hence why there is no benefit to part paying them off early.

'@igivein

Because the government sold them off to private companies who want to make a fat profit from them.'

This!

YANBU.

I have always said if Gina miller or some other tenacious lawyers decided to take this on it likely wouldn’t stand many tests.

In many ways it’s misold. Ie. The terms are that the terms can change at anytime with no consultation 🤣

I also question its legality as they are signing people up often in the year before they are 18 (that might not be when the contract term starts sure; but it’s when they sign up and apply).

Surely the benefit would be that you would pay them off early, and pay less interest.

If you think you will never pay off the loan, then it holds true.

If you have a loan of £10,000 you pay 9% of your salary over the limit
If you have a loan of £100,000 you pay 9% of your salary above the limit

Amount borrowed does not affect
amount deducted from salary each month

so paying off part of the loan will not save you any money
UNLESS you are earning enough to clear it down before the 30 / 40 years