Student loan - do you worry about debt?

[Paraela]

Do you worry about how much debt are your children accumulating with the student loan?

We decided to pay our DC student loans off. DC1 borrowed 46k, 9 months after graduating this loan debt was 52k. We were shocked how quickly the debt was increasing with 7.8% interest being added.

DC1 got a job paying 33k and after 2 years this will be 50k. At 33k, the debt would be going up quicker than the repayments with 7.8% interest. (paying off £500 in the first year, but £4000 being added in interest). We had to make a swift decision as the debt was increasing daily. Even earning 50k in two years time, the student loan repayment calculator www.student-loan-calculator.co.uk/ shows that they will pay 136k back over the lifetime of the loan, but still have 106k of debt outstanding after 30 years.

We were only getting 5% on our savings (4% after tax), but DC1 was being charged 7.8% on the loan. We see this as giving them some inheritance early. We inherited in our 50s after struggling in our 20/30s. Their grandparents would approve of us helping them and they will have more of their own money to use to help buy a house in the future. A 9% additional tax saving for 30 years is a nice inheritance.

@Sailonsilverrgirl . Getting more goosebumps and a bit of teary eye even thinking about hearing them live. You lucky thing!

Everyone else- as you were!

It's a similar reason for us to pay loans off. DC1 paid more than 10K in the first two years and then we realized that the loans grew by around 10K. Regret that we didn't do any research by taking the loans.

This is what I think; it is like a never ending debt with small payments and high interest

Regarding the taxpayers ‘time bomb’ of unpaid student loans, previously there were student grants - paid by the taxpayer to eligible students - and never paid back

Student loans were introduced to widen the scope of eligibility and to recoup from those able to pay back

Unpaid student loans are not an unintended consequence, they are a design feature of the system

The taxpayer / government are not paying interest

Students repaying loans pay interest
If they pay back the full loan plus interest (or most of the loan plus interest over the original amount) then it costs the student more than if they were to pay off earlier

Those who don’t pay back aren’t paying more via the interest

Student grants were not paid back at all
If a student never earns enough to meet the threshold then the student loan is equivalent to a grant, but remains on the governments books until it times out and is written off

Those who pay back something have made the grant system cheaper for the taxpayer (other than inflation) and more students have had access to further education

This.

DD’s friend did nursing but has now started her family and is working part time. She will never pay back her loan.

The biggest reason people aren't paying it off is due to the astronomical interest rates so there's definitely enough money in the pot.

I think I could have paid mine off twice by now but I'm barely touching it.

I actually think student loans are worse than the PPI scams etc we hear about.

I was told that you pay inflation "it's like buying a basket of shopping now and paying for it at the future cost" it's so cost effective.

But actually, I graduated in 2008 I think and I still haven't paid it off despite being a middle earner. I didn't earn enough to pay it off until 2015 and it gained so much interest in that time it went from something like 12k to 16k and now I still owe more than that 12k. Every year I get a few k as a bonus. 10% of it gets swallowed up into the student loan but then comes back from interest charges so it doesn't help me at all. I feel lied to and it's such a minimal amount. I dread to think how kids of today feel about it.

I graduated in 2011 and still paying off my student loan. I don't find it demotivating. It's hardly anything out of my pay. And it's not stopped me buying a house (on my second house now) or anything else. I rarely think about it, let alone worry.

I was able to repay my student loan in full within a few years because a) I went to uni in the early noughties, when fees were only about £1,200 per year; and b) I got a well paid job as a city lawyer. My total debt when I started paying it off was around £14,000, and I think I managed to repay in around six years, eventually paying a lump sum to clear the balance. The removal of student loan deductions from my payslip was a bigger pay rise than any actual pay rise I have ever been given at work.

The thing is, for my generation it was worth trying to overpay the loan if you had a good job, because it was a realistic amount to clear. With the enormous loans students are required to take out these days, only the hedge fund managers of this world have a chance of paying them off quickly, so other graduates may feel the money is better spent on savings for a house / wedding etc. than to overpay student loan, especially when the overpayment won’t reduce your monthly deductions. But that means they are repaying the loan for years and years, including during the ruinously expensive nursery / nanny childcare years when they probably also have a massive mortgage and need the money. As a PP said, the student loan repayment is also money that won’t be going into the graduate’s pension, increasing the likelihood of an impoverished retirement and being reliant on the state.

Tony Blair trying to get 50% of the population to university has led to this mess. We should go back to having only a small proportion of the brightest A Level students going to university, with proper funding, and others being able to take jobs that don’t need a degree (removing the inflated entry requirements for entry-level positions which have only been introduced because everyone has a degree…). However, I don’t think that genie can ever be put back in the bottle (as it would involve universities effectively going out of business, with devastating effects on jobs and the local community), so politicians continue to fiddle while Rome burns. What a mess.

@metal
@metellaestinatrio "However, I don’t think that genie can ever be put back in the bottle"

It'll be interesting to see what changes are proposed by the new government. A couple of think tanks have proposed that employers pay a higher rate of national insurance for employing graduates.

We have done the same, and like you, I'm not 100pc sure it was the best thing to do, but glad they are not starting out with heaps of debt.

@grimupnorthnot most will be on plan 5.
It's over £25k now and 40 years - the powers that be now say over 80% will pay it back and that includes much more interest than the original loan!
And if you were told your income tax was going up by 9% would you be happy?
My DD worries more than I do as it's her debt. She's frugal and hopes to save enough over next summer to only get minimum loan next year. She got almost max amount this year plus a bursary which covers most of her costs.
I see no sense in borrowing money that until recently had an 8% interest accruing from day one.
If I could afford it I would pay for her accommodation/expenses and have her just take the tuition loan. I don't know any savings account that earns more interest than the loan charges, plus that assumes that there's a single pot rather than an amount given over time.

@mondaytosunday Loans are based on parental income, not what a teen saves or has in the bank. I guess you can ask for the minimum loan but does anyone want to use up all their savings? I’d take the loan and then pay it off if her job looks good. The amount she pays every month when working is the same if the loan is £20,000 or £60,000. So she and you need to read up on this. It’s the job that matters.

It’s clearly the case that not all grads get graduate work. Many do jobs where grads aren’t really needed. So increased NI might reduce the jobs where employers take grads. Grad employment salaries have stagnated too.

It was not Tony Blair that increased uni numbers!!! It was Major who allowed colleges to become unis in 1992 and then Cameron lifted the cap on student numbers in 2014. . We had around 10% going to Uni in 1970 and 38% now. The state is borrowing to fund the loans!! We have a massive national debt. However thousands of grads barely add to the economy and don’t get grad jobs at all, so is it worth it?

@Paraela My DD paid off her loan 8 years beyond graduation. She started work 2 years after graduation, so in effect, 6 years of work. However she’s a high earner and not on plan 5. It’s very difficult to know how well a career will go though. We could have paid up front, but decided not to. DD2 is paying very little off! If she has a family that will be even less!

Inspired by this thread I looked for a spreadsheet and found this. PPs might find this useful.

www.student-loan-calculator.co.uk/

Haven't quite RTFT so this might have been shared already.

When using any online calculator (especially Martin Lewis's) it's worth checking the default assumptions. For example this one assumes salary growth of 5%, which is only reasonable if you stay in the same job and never get promoted.

When I looked back at my own modest career since graduating, with flat periods when I was working part time, two job changes that gave me a step up, and a period of working in HE (where we get annual increments as well as inflationary rises), the average salary growth was significantly higher than the default.

We have paid DS1's off after the first year and are now loaning him the money. DS2 will start in September and we will do the same.

If we have the money sitting in our savings account we will be taxed on the interest it earns and so we might as well save them the debt and the compound interest trap.

We have told them they can pay us back for the tuition at zero interest (although the reality is they probably won't) If they do we will then save that money for them for a house deposit (I suspect one might pay it back and the other might not..)

We are fortunate to be able to do this. Both of ours were at private school so we have been paying these sorts of sums out anyway for their education and are used to budgeting accordingly.

We decided if ours didn’t earn much, they wouldn’t pay much in grad tax. Thats still true except it goes on for 10 years longer. So they got loans even though we had paid boarding fees. It’s part of making choices. Our money has been better spend on property for them. It’s a more difficult decision if you don’t have much spare or your dc aren’t going to get high income jobs. The sooner it’s paid off, the cheaper the loan.

For us the fact that the interest rate was over 8% last year means that our savings were best used in this way (we are both top rate tax payers). Everyone will be different though.

I decided to do what my parents did - fund university for the children without debt - my parents made our tiny minimum grant up to the full grant. My 1st 2 children fees were £1k (plus massive rents), then next one £3k and final two 9250 (plus rents). I don't regret paying for all 5 to have no student loans (and I have helped with a first property for each too). For me it was a matter of principle (and I could afford to pay) that I did not want them starting out with that kind of obligation and I thought they could be fairly h igh earners (4 are London lawyers). Even the one who might never have paid a loan off is glad he doesn't have one. However I know the pros and cons and different views so parents who are lucky enough to be able to afford it just need to decide what feels right for them. Eg for me university cost about the same as school fees so I was basically just continuing on to pay a similar amount to what I paid before.

I am always bemused by the it's just another tax.

Budget in 2 weeks. Your tax rate is going up by 9% on everything you earn over £25k. How would you feel?

Your tax rate is going up by 9% on everything you earn over £25k. How would you feel?

I'm old enough to remember 33% tax rates on much lower thresholds ! So fine!

My dc's (15% as Masters loans too) also fine - they've never known any different.