Plan 2 Student Loans- much higher interest, Times article - parents pay off

[fluffythecat1]

Our son is potentially heading to university in a few years. I follow Martin Lewis for his excellent financial guidance and have been concerned about his advice on student loans. Before, it was advisable to get a loan and in likelihood not pay off the full amount under the old system, now it seems the interest on them has changed as discussed in this Times article from yesterday, meaning that even with a good job, there is a significant long-term burden for graduates.
What are people’s thought? Gap year to earn some money before going? Put any money in a child trust fund towards it? Reducing the amount of loan taken looks key.

I had £21k student debt — why did my twin owe £40,000 more?

https://www.thetimes.com/article/8598d6cf-cb9e-4e78-9a51-7b1023ce53a6?shareToken=e66982418968f371f402de3a5c210f99

My advice if you are pay towards the fees but not all is to pay the early years first ( as interest starts from day 1) so it’s better to get fees/maintenance from yr 3 as less time for interest to compound.
also you don’t need to borrow what they offer for maintenance. You can just borrow what you need ( if less obvs) so your child in yr 3 might be able to borrow 6k but you might choose to borrow only £4k for example

Regardless of which plan the marginal tax rates are eye-watering. Given that the government daren't even add a fee percentage points to cover the 'black' hole, why do we just accept that are young people are paying rates that are 9% higher in the tax bands above the threshold. If this applied to all then there would be uproar. Nor is there ever any discussion re the mental weight of carrying that debt for 30/40 years.

Our graduates can't afford houses, to save, have families, it is a disgrace. Fortunately, my DC have/will graduate with no debt - is that fair? Probably not but the system allows some to be punished and others to benefit.

https://www.if.org.uk/2022/02/25/regressive-student-finance-plans-will-punish-low-and-middle-earners-the-most/

All the plan 2 loan recipients got charged RPI+3% interest for the duration of their degree. Then a sliding scale of RPI to RPI+3% depending on their earnings when they graduate.

I don't think this part was mentioned much by Martin Lewis in the past because interest rates had been so low for so long.

The government did introduce an interest rate cap in 2022 else there would have been 15% added to the loan balance that year whilst the student was still studying. Interest rates are still much higher than other plan loans. On top of that, the repayment threshold has been frozen when it was supposed to always rise in line with average earnings.

So what should.people.do who cant afford to go to University without a loan?

I think its thinking really hard about whether you really need to go to University or not.

Does your chosen pathway require a degree or not?

Are ypu just going because it's the done thing. Has the child got a plan, motivation to achieve.

Is it worthwhile them going??

Once thats decided it's thinking- is it better to give them a lump sum of 50-60k at age 23 so they can buy a house etc or use that cash tp ensure they start their life without a loan?

If the person needs a degree then they need one. And if they cant afford to pay upfront then they have no choice I'm not sure why all the hate for Martin Lewis he doesn't control the policies.

I earn over 100k. I couldn't have done my job without my degree.

I think thats the pay off.

Either the degree is worthwhile or it isn't.

I could have gone without paying the student loan but wouldn't be earning as much now.

Paying yp front - it's doing the calculation on whether your child will be going into a high paid career or not- are they likely to overpay?

Other things such as if they decide to be stay a home parents or hopefully not- get a health condition so cant work.

It's weighing up whether it's better to pay it up front or not. And if you have the cash is it better to give them the cash for a deposit instead.

Mine are too young. I could pay upfront- but for me it depends on their career pathway on whether I decide it's better to pay upfront or use the money and help them with a property instead.

I agree charging higher earner more was immoral.

But the new plan goes up by RPI . So essentially only paying back what they have borrowed.

When my kids were born the cost of going to Uni was less than a third than it was by the time they went. Was I supposed to use a crystal ball ?

The reason young people get shafted is because they don't vote. If they did vote and outweighed the older cohorts who seem to want ever increasing pensions and winter fuel allowance etc and do go out to vote, they would be treated more fairly.

@Woollyguru
Tricky considering that kids do not get the vote till they are 18
by which time they are starting Uni

Pensioners get the vote for decades

@Isekaied, I actually love Martin Lewis, and think he should be knighted 😄.

But the current situation with student loans doesn’t seem very fair - I think mid-earners will be disproportionately hit really.

Mine vote ! Every single time. But both parties are responsible for this mess. And Reform will never be an option

Nonsense

Most parents make a contribution

😂😂😂 how is an 18 year old supposed to fund themselves for £9,250 fees and £10,000 living costs (rent is expensive !). Some people live in a v strange world.

They use student loans if they want to go to University?

I'm not sure of the point.

Are people complaining that students aren't getting free tuition? And bursaries that don't have to be paid back?

They're not being forced to go to University.

They should really research their options before deciding whether they need to go or not.

It’s interesting that people think higher earners paying more is immoral - you are not alone - but that is the very basis of our progressive tax system: rich people (ie higher earners) pay more.

The problem is that everyone thinks they’re not rich and it’s the other rich people who shld pay.

The richer students either pay via the loan system or will end up paying higher general taxes. There isn’t anyone else with the money to pay.

Plan 5 loans are not actually better for students than Plan 2 loans - they have been designed so that more people pay back in full and the 9% charge stays for an extra 10 years. (They are supposed to reduce the amount the govt pays, by making the students pay more.) In addition the threshold for repayment is lower for Plan 5 loans. So actually 2 people earning the same will see more deducted from their monthly salary if they have a Plan 5 loan than if they have a Plan 2 loan! Plan 2 only looks worse if you look at the escalating nominal debt, but - in theory - that’s not what you shld be focussing on, it’s the monthly repayments.

They are all terrible. But university - and especially living away from home - is expensive.

Rachel Reeves was very stupid to freeze the repayment threshold - she was treating it like income taxation where freezing the thresholds raises more tax without actually increasing the tax rate. She was even more stupid to say she had to do this to fund the NHS since the student loans are supposed to be paying for education not subsidising govt expenditure.

I thi k with the Plan 5 people will really think- do i need this much loan?

Maybe take out less loan if needed. Because there is more chance of it being paid off maybe they won't take money for the sake of it.

And apart of the reason more people will pay it back completely is because the interest charge is less.

For the ones who would have paid it back fully- they would have been much better off on the plan 5 loan.

Interest would have been less- they would have paid back much less interest and it would have been paid back much earlier.

It's the lower paid graduates who wouldnt have paid it back fully that are worse off on the new loan.

DH and I both graduated before loans and we don’t want our DC having loans
In Scotland so no tuition fees , all went away for Uni we covered all costs currently £1200 a month each for rent and expenses
Also pay stuff we have always paid eg phones
My ILs pay DC something every term, think about £500
I went full time to fund

@Isekaied so how do you expect the next doctors, nurses etc to train ? Or should just the rich go to Uni ?
No one is complaining about loans. But at a fair market interest rate eg RPI. Not inflated at 3% + and interest increasing if you earn more. So you never even cover the interest and the loan keeps on growing. £70,000 debt, repay £250,000. Should be illegal (loan sharks are)

I couldn't fund mine as was 10 years at Uni, 3 overlapping and would have meant finding £40,000 cash each year. I'm a teacher, not possible. As it wouldn't be for 90% of population.

It seems social mobility is back to the 50s when only the rich should go to Uni. When I went it was free.

That's true. But generally younger people don't vote as much as older people and that's why they get shafted.

RR is just stupid all round. As are most of the Treasury.

I said it was immoral.

But the new plan 5 loans are at RPI.

I'm assuming you mean you couldn't completely fund tuition fees and living costs for 3 kids at the same time.

I doubt many would be able to.

That's what the loans are for.

Not sure why you think you need to completely self fund 3 children?

A person earning £35,000 would take home £2,393 every month if they don't have a student loan.

A person earning £50,000 would take home £3,106 if they are paying back a Plan 5 loan.

Make up your own minds if you think its worth it.

Obviously it depends on the degree but if the degree will increase your salary then it's worth it.

I'm glad I got a degree and paying off the loan afterwards were what it cost so I can earn what I do now.

I will just make the same calculations for my kids when it's their turns.

Is it worth them going to University?
And then is it worth trying to paying the costs up front or using any money I've saved for other things e.g. house deposits.

Mum to a final year student, and a recent graduate who started work as soon as she left uni (salary £36k, hopes to increase). As we were fortunate and able to, we paid their fees and maintenance costs outright. Both have incredible work ethic and are v grateful for having no debt.

I am happy I ignored Martin Lewis and many others, and that I managed to persuade my husband to do this (along with an accountant friend). He recently told me that I had made the right decision for our family.

A 25k a year job does not pay you 2k a month, it also doesn't pay your living expenses or anything that sounds like anything fun in that year if your trying to save 20k in a year.
Living at home isn't an option for everyone, not everyone has a good uni on their doorstep. Actually we do, Oxford uni is our closet uni and it's also really exclusive and my DD doesn't meet the grade requirements.
After DD being at home on her gap year and seeing what limited options there are for them all, kids stuck in there part time job they got a 16yrs despite leaving school with good A levels I have come round to thinking that she needs to go and probably not in our town. Degree apprenticeships are also so competitive
I believe I was on plan 1. I barely noticed it when I worked part time, took maternity leave etc..... but as I climbed higher up the food chain and there was limited support I could get at as single parent due to a higher wage and it hit me a lot harder. I paid it off when I was 42 with some savings. I imagine my DD will get some sort of inheritance from me at some point as well as other people so think she will be fine in other ways.