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

Politicians have moved the goal posts in the past....

Key Examples of Retrospective Student Loan Changes:

• Freezing the Repayment Threshold (UK, 2015-2018): When Plan 2 loans were introduced, the government promised that the £21,000 income threshold at which graduates start repaying their loans would be increased annually in line with average earnings starting in 2017. In 2015, the government announced it would freeze this threshold at £21,000 for five years, backdating the change to include students who had already taken out loans. This meant graduates had to start repayments at lower income levels and pay more annually than initially promised.
• "Disgraceful" Breach of Contract: Personal finance campaigner Martin Lewis described this action as a "disgraceful retrospective breach of promise" that would not be allowed by a commercial lender. The decision was heavily criticised because it altered the contractual terms of a loan after the borrower had already agreed to them.
• Government U-Turn: Following intense pressure, a petition with over 100,000 signatures, and a parliamentary debate, the government eventually reversed this policy in 2018, increasing the threshold to £25,000.
• Sale of Pre-1998 Loans: In other instances, the government sold off older student loans to private firms, which subsequently introduced new, more aggressive administrative practices and reported to credit files, which was not the original arrangement.

I do wish people would not copy and paste the AI from the top of google

I made all 3 of my DC take out student loans simply to give themselves skin in the game.

It was always my intention to help them out if I could - but only when (and if!) they graduated. One down, 2 to go!

In relation to IHT there is a bit of a grey area for parents and loan repayments. As a parent, if you pay off the loan some time after they've finished their degree, they are not deemed dependents and the repayment is seen as a PET - so will be in your estate if you die within 7 years. Therefore if you do repay your child's student loan, do it quickly after graduation, just in case you get caught in sniper's alley!

Both of my children have big loan balances.

When / if I am able to support them it will be a lump sum towards a house
(allowing them to get a cheaper mortgage)
rather than handing anything to the Student Loans

Politicians can and have changed the terms, by freezing the salary at which you start repaying. In what way is that not moving goalposts?

@OhDear111 - I said why do it if you don’t have to, not why do it… I can fully see why wealthy parents would often rather just pay off their children’s student loans, like they pay for school fees and everything else… It’s not like it costs mucch more, if any more, than years of school fees, as Xenia has pointed out.

https://blog.moneysavingexpert.com/2026/01/beware-plan-2-student-loan-repayment-freeze/ blog.moneysavingexpert.com/2026/01/beware-plan-2-student-loan-repayment-freeze/]]]]

On a Plan 5 loan, repayments start once earning £25,000 a year. When the national minimum wage goes up in April, I think you’ll be able to earn more than that on minimum wage working 40 hours per week.

On a Plan 5 loan, repayments start once earning £25,000 a year. When the national minimum wage goes up in April, I think you’ll be able to earn more than that on minimum wage working 40 hours per week.

@Walkaround We paid boarding school fees. 8 years of fees for 2 DDs at university? No thanks. Done enough! One has paid loan off and I doubt the other will. It’s significantly more money for parents to find. Our DDs agreed and they have money for houses.

It used to be on the basis of paying back the loan once you earned over the average wage. Which, when I had student loans to repay, 25 years ago, was about £25k pa.
It's appalling that it's now set at pretty much minimum wage level.
We should have more scholarships and bursaries, and write off loans (or have a lower repayment rate) for people going into lower paid societally useful jobs like teaching, NHS, social work, police etc.

@TwoTuesday You might be very surprised to know that the degree with the best fiscal return is medicine. That’s because (until recently) all grads got employment. Not so for nearly every other degree. They get extra payments and the best pensions too. Economics comes second. (IFS).

Also grad salaries for many have been at a standstill. That’s because we have no growth and employment taxes.

I like your idea that the police and teachers are poorly paid! They start on a lot more than the min wage and the police do very well with overtime. No table of grad income puts these jobs bottom.

You might think we can do without bankers - turns out we cannot. Also, who pays for scholarships? The fees paid to the unis presumably? Or the tax payer yet again?

Plan 2 student loans are clearly socially regressive.

Those who did not need to take them out - the richest
will not face the 9% salary deduction
so have higher effective salaries both to live on and for mortgage purposes.

Entrenched priveledge for those whose parent were able to afford school fees
carried on for the rest of their lives

But then again, OhDear111 doesn’t think so, as they could afford to pay their children’s university fees, but chose not to. Others may attempt to pay their children’s university fees for them, even though they can ill afford to and have to save for for years for that sole purpose, because they fear debt and are more likely to see student loans as debt, however much Martin Lewis tells them they are more like a tax (with favourable terms for the wealthy, who can choose to enable their children to avoid the tax by paying fees upfront, but have no obligation to, which is an agreeable choice to have). Plan 2 fees in that respect are less socially regressive than Plan 5 fees, as Plan 2 fees only have a 30-year term, not a 40-year term, and it is still the case that graduates from wealthier backgrounds are statistically far more likely to have better paid careers post-graduation than graduate peers who were born into lower socio-economic status, so they may well end up paying more interest on their loans over 40 years than their wealthier counterparts who can afford to pay off their loans sooner.

Sorry that was a typo I mean 2018

it’s ’simple’ in the sense that it’s blatantly obvious that creating a massive oversupply of graduates is going to lead to wage suppression in sectors where there are too many people competing for the same jobs. The same applies with PhDs. The number of PhDs has exploded over the past couple of decades, largely because universities benefit from the cheap labour (plus bonus income if they are self funded), and academics benefit from having people to do their research. None give a shit about how poor the employment prospects are for these students once they’re done. It’s all about boosting their own ego and careers.

I don’t know what the fuck this has to do with Epstein. Plenty of academics abuse power, privilege and influence.

@Walkaround It depends if you think dc should bear some financial responsibility for their education and what work they do. Well that was our view and many thought like us. We know others who have used savings for fees and maintenance and dc are still renting. That’s hugely expensive over the years they are doing it and can be soul destroying.

I do think supply and demand in terms of students produced and jobs available matters. We have allowed the university sector to become an uncontrolled monster that perpetuates its own growth because it makes jobs available for people who don’t want to go into the workforce but like being a perpetual student. Of course some of this is vital research but some of it definitely isn’t.

It depends if you think dc should bear some financial responsibility for their education and what work they do.

I had no tuition fees, got a grant, and got housing benefit in the summer holidays.

Does that make my degree worth less ?

Rich people - student loans are fine and fair so stop moaning

Poorer people who have to take out a loan to get a degree - RPI + 3% is what loan sharks offer

@Talkinpeace and me. Infact they gave me money to go to Uni. Also got housing benefit and could claim unemployment in long holidays (never did as I worked). Think my degree is still worth a lot.

What counts as taking some financial responsibility for what work they do, mean? That pursuing a career directly related to your degree is not good enough if that career path doesn’t ensure you pay back your loan in full? If not, then what? Don’t do a degree if you lack social confidence and connections, because you are less likely to fall on your feet straight after your degree and won’t have anyone to fall back on if it doesn’t work out?

My degree was in my favourite subject at school.
It has nothing to do with how I make my living.

When I was applying for training places, the big accountancy firms
actively avoided people with accounting or business degrees as they were regarded as too narrow.

Degress are not all meant to be vocational.

@Talkinpeace Good grief!! An entirely different era! That's total nonsense! You were in a much smaller cohort going to university though with much better earnings outcomes. Well done you.

That does need a bit of broader context though.

Don’t know when you graduated @Talkinpeace but possibly not wholly dissimilar to me

Mid 80s.

• Base rate of tax 33%. Not today’s 20%
• Tax free allowance £2,205 - equivalent to £6,670 today, way lower than the current £12,570
• Highest rate of tax 60%, on incomes over £40,200. Equivalent to around £122,000 today, which would now attract tax at 40%.

but, and I think this is a massive but, or several buts

• housing costs way more affordable.

• wage growth - definitely not stagnant

• AI - would have just led to a puzzled response about there being five vowels

• graduate salary premium - a very real thing

plus far fewer went to Uni at that time too of course.

I do wonder irrespective of some of the less appealing aspects of Plan 2 loans how much teeth gnashing there would be if we were in rather more benign economic circumstances with no real cost of living crisis to contend with.

Though to be clear none of the above in any way makes your degree worth any less.

@Walkaround We know we now have around 37% of school leavers gojng to university. When DH went it was 10%. You can surely see the difference in cost to the country? If we want 37%, the students have to pay because uk plc pays for their loans (if not repaid). We wanted more dc going to university, but there is a cost. The state paying for everything is untenable. We could go back to the good old days and ration places of course. As we used to. Is that better?

No one says the loan had to be paid back in full. No one at any stage. However seeing uni as a state paid fun 3 years and making coffees at the end isn’t what university was intended for. 50 years ago or now.

It’s clear some degrees have a very poor return, mostly art ones - theatre etc. Do they need to be degrees? Others are not great either and should dc be going with DDD or worse at A level? Or should there be mid level HE courses which can lead to degrees? If people don’t want to pay, alter the service to what they will pay for.