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?

Okay, let’s not use the word “subsidise” let’s say “pay for”.

The individual has to pay or the tax payer has to pay. Our settlement in the UK is 13 years of free state education and after, if you want higher education, you pay directly for a large portion of it.

We could have the tax payer pay more.

if you want higher education, you pay directly for a large portion of it.
No.
You sign a tuition loan agreement and the government pays the University.
You receive a maintenance loan from the government 90% of which goes to either the University or a private landlord company in rent.

At a later date part of that cost is deducted from your earnings if they are high enough.
If they are not, you pay little or nothing.

The very rich self fund their degrees so the graduates effectively earn 9% more than everybody else.

I think you are being pedantic. What is the point you are trying to get at here?

The value of a student loan balance is not real money.
The kids have not "paid" it.
Its just an annual statement they ignore
or treat as a 9% reduction in income when considering a mortgage or other borrowing.

I have two recent graduate children and have seen their statements.
I would not pay off their loans even if I won the lottery.

That is not the settlement in the UK at all. Scotland is very different.

The DC will have to keep paying for 40 years now. The majority are expected to pay it off in the new regime.

But you are basically saying, the market isn’t clearing the price, but that’s okay because the tax payer will pay in a round about way.

Actually, I’m wrong. In part, it’s other university leavers who pay for those who can’t through higher interest rates.

On the private sector point the Government / SLC did sell off the loan book as it then was to private sector company Erudio so the private sector is very heavily involved. I paid so that my 5 children had no student loans but it is fairly rare for a parent to do that. For the 4 of them who are lawyers that has probably been a very idea and they were lucky I have always worked full time and was able to pay for them to have no loans.

"Erudio Student Loans is a consortium formed by debt collectors Arrow Global and private equity firm CarVal Investors in 2013. The firm was the successful bidder in an auction to buy non-performing U.K. student loans in 2013, paying £160m to buy debts of £890m taken out between 1990 and 1998."

To those who understand the details, when it's said that a much higher percentage of students will pay off the loan over their lifetime...do they mean the students will pay off the original debt or will pay off the whole debt including the compounding interest?

Read the thread. I've already explained why this isn't the case now and never will be.

And the Gov always funded the upfront cost anyway so not really sure what your point is...

Including interest. Which is now designed to maintain the real value of the loan allowing for inflation.

This

I don't think the terms of the loans changed after the loan books were sold off. When loans are sold the terms remain the same as they are buying and pricing based on the terms of the loans.

But someone has to pay for students’ degrees and if it’s not the students it’s the general tax payers, and no one likes tax increases either.

Increasingly, employers are paying for the degree. Degree apprenticeships are on the up, with many top-name companies offering them and many top students choosing them (including kids who could have gone to oxbridge).

Many of us are well aware that student loans for us were an absolute swindle. £15k repayment threshold is barely above minimum wage and it won't be long until it is below the tax-free allowance so I'll be repaying student loan but not paying income tax on that money. I honestly don't even check the statements any more cos it's too depressing.

Many of us are well aware that student loans for us were an absolute swindle. £15k repayment threshold is barely above minimum wage

Plan 2 threshold is £25k and plan 5 is £22k.

What plan has a £15k threshold?

National minimum wage is £11.44 per hour
which for a 37 hour week is £22010 per year

Only Postgrad loans have a threshold below that
https://www.gov.uk/repaying-your-student-loan/what-you-pay

You are correct that they are not comparable, but not for the reason you give.

A loan where HMRC deducts the repayment from your salary is much more secure than a loan where it is merely secured on property.

Disagree, because HMRC cannot compel you to continue earning if you decide to take a career break/come into money/become a SAHP.

…or stop you from moving abroad and earning there, I guess - though not sure if HMRC have arrangements with other tax authorities impacting student loans

…or, indeed, dying before repayment.

A physical piece of security has crystallisable value. A house, an oil painting, a wine cellar, the stock or machinery of a business, whatever. Hence, secured loans are at lower rates.

So your argument is that the rates are set so high in order to subsidise those who don’t pay the loans back? It would be interesting to see some figures on that.

It’s expected that 70% will pay the loans back in full, including the extortionate amounts of interest. 30% therefore will not pay back “in full” but would have made varying contributions, ranging from some who would have paid back the original capital and a fairly large chunk of the interest, through to some who presumably wouldn’t have paid back anything.

I’d be interested to know what those figures were without the inflated interest. If the interest rate were lower would that 70% full payback figure be more like 90%.

It’s not “my argument” - it’s a comment on secured vs unsecured loans in general, prompted by your thoughts about mortgage rates being lower than these rates.

Hope that’s clearer now. I will leave it there.

@SheilaFentiman apologies, I seem to have upset you with the word “argument”.

I meant it in the sense of “the point you were making”, so as to be able to expand on it, as I thought it was an interesting point.

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%.

The bank has low risk with a mortgage. They ‘hold’ the amount loaned in the property value so if you default they sell your house.

Graduates are just being milked as cash cows.

Strange definition of cash cow given they don’t get their money back from between 30 to 80% of students and have to wait up to 40 years for those they do.

I would not have gone to university if I was young now, but my work that followed my degree has been useful to society, created jobs and generated tax revenues.

I don’t understand why students training for essential functions should pay all this. Is the student loan situation putting off bright but low income student nurses, doctors etc who are needed for the NHS?