It's normal to have a student loan isn't it?

[elliejjtiny]

Dc1 and dc2 have student loans as we did at university and most of my friends did. I think there was one girl whose parents paid for everything and then bought her a flat at the end of university but she was the only one. We visit them, take them out for dinner and do a food shop. I've found out a relative has saved enough money for their children to go to university without having to pay anything and then enough for a house deposit. The dc aren't even teenagers yet. That's not normal is it?

No I know of a few relatively wealthy people who have done this but no not among anyone I really know, I’ve heard of people talk about ‘saving up’ for their child going to uni and giving uni costs as a reason for choosing not to have more children. Personally feel the whole uni thing is just a scam

Perfectly normal in the real world. Not normal on Mumsnet.

We paid everything for DD (she graduated last year) and are paying everything for DS too. It’s no more expensive than the school fees we were paying. We’ve suggested that they should pay the 9% that would’ve serviced a student loan into their pension. DD is doing this. (We set up pensions for them 10 years ago - so they both have reasonable pension pots for their age already). They’re on their own with buying a house though!

There has been a lot of discussion in the press, in govt and in think tanks about changing the student loan system over the last few months - including case studies of several MPs who have over £100k of student debt. And several proposals have indeed been to make all graduates pay an additional “graduate tax” for the same set period. There is a view held by some people that those who have paid off their loans early or didn’t take loans are rich/lucky because they don’t end up paying years and years of compounding interest, so therefore they should be made to continue to pay a graduate tax so that those who borrowed a lot more and aren’t earning enough to make a meaningful dent in their loan, can pay back less.

That doesn’t mean the govt will do this but there are certainly various different models under discussion amongst policy makers.

So they are suggesting I should pay a graduate tax decades after I went to university despite paying back my student loan all those years?

We have paid the fees so my DC won’t have student loans. The interest rates are horrific.

I'm 45 and still paying mine...

@elliejjtiny from my understanding the interest rate on student loans is no more than inflation. The difficult part is paying 9% of your wages once over the threshold. However, if you don’t reach the threshold you pay nothing back, and if you remain within a certain pay bracket for 40 years you’ll pay less than what was borrowed. Only the very high earners will pay back more than they borrowed, which probably makes up for those who don’t. Although if you’re earning a great deal then more can be paid early to reduce this overall bill.

Basically it’s a cheap loan to have. And it can just be seen as a tax on your wages. If you don’t earn for a while, you don’t pay.

We’re in a situation where we could possibly pay upfront but it will be tight as well there’ll be a crossover of both children at uni for 2 years. Based on what I’ve said above, I think we’re going to keep the money saved for the DC, keep adding to it, and give them a lump sum after they finish Uni to use as a house deposit instead. They can pay the student loan tax if needed from their wages without having to save for a house deposit.

No, very high earners pay off quickly and this avoid paying lots of interest. Mid earners pay the most as they consistently pay but over the whole 40 years. This group can end up paying over twice the amount borrowed. Plan 5 was designed to get more students paying back, the change from 30 to 40 years makes a big difference.

GP covered tuition fees (cheaper than UK as studied in NL) and I paid rent and minimal living costs plus DS worked to supplement that. Very happy he has no student loan hanging over him. We live in Belgium where uni fees are max €1200 per year so no student has a loan. If your parents have a very low income, it’s basically free and you can get support with living costs, tho lots of students live at home .

"From my understanding the interest rate on student loans is no more than inflation"

The interest rate on the new Plan 5 student loans is equal to the retail price index (RPI).

The rate on the more controversial Plan 2 loans is RPI + 3%. It is this Plan that is generating most of the current debate.

"Only the very high earners will pay back more than they borrowed."

No, this is incorrect. Middle earners (who pay back the full loan slowly) will pay back more than high earners (who pay back the full loan quickly) because the interest on their loans will be accruing for a longer period of time.

"It can just be seen as a tax on your wages"

The 'just' in that sentence is disingenuous. An extra 9% tax over several decades is a lot of money.

This Gov uk web page summarises the repayment terms for each of the plans: https://www.gov.uk/repaying-your-student-loan/what-you-pay

One thing many people don't realise is that postgraduate loans have to be paid back in parallel with undergraduate loans - i.e. postgrads end up paying 9% + 6% = 15% of their wages on top of their tax and national insurance. Many find that they need a Masters degree to stand out in a competitive job market.

If your DC's undergraduate degree has an integrated Masters option then that is a significantly cheaper way to do a Masters degree because its cost will be capped the same as the ug degree, and it will be covered by the ug loan, not the pg loan.

Yes @ohbutyes , the integrated masters is financially a very good option for both students and universities. However, it doesn’t allow you to pivot to a related, possibly more career relevant subject eg if you did a biology degree but want to do a masters in health economics. The difference is something I think the govt shld look at.

It all changes from 1st January 2027 to the Lifelong Learning Entitlement (LLE), which apparently is not plan 5 renamed and has a fixed interest rate of 3.2%.

LLE will have similar terms to plan 5. The interest rate isn't fixed, its pegged to the Retail Price Index (currently 3.2%) and capped at 6%.

Plan 5 borrowers won't notice much difference.

There'll be a benefit for students who drop out of courses because HEIs will be encouraged to offer modular degrees that can be made up of credits from different universities. The University of London is already starting to offer this model though its early days.

Stupid to pay when you can get a loan. Theyll never pay it back.

They start paying it back as soon as they reach the repayment threshold, and will continue paying it back for the next 30 (under plan 2) or 40 (under plan 5) years.

Correction it follows RPI + 0%. Next years’ interest is currently set as 3.2%.

This is the sort of thing people will be able to use the Life Long Learning Entitlement for: https://www.london.ac.uk/study/microcredentials They are individual modules that can be stacked to create a degree (in this case a postgraduate degree).

A lot of people won’t pay it back in full (ie full loan amount plus interest) but they will end up paying well over the sum received. Of course if they ever introduced a system where all graduates just paid a tax then every student would take the maximum amount.

Probably the biggest issue with replace loans with basically a grant and a graduate tax is suddenly the cost gets put onto the books. Currently loans offer a fudge for the government to keep the cost of higher education off the government’s balance sheet.

I think at most they can restructure the loans. Writing them off would be political dynamite.

Those who had payed them off would be aggrieved.

Writing them off also puts the cost onto the balance sheet and the country is already facing unsustainable debt.

Plan 5 loans are designed so that the majority DO pay them back (plus extra interest for many). Previous iterations have not done so, hence the change to a 40 year term.

This. Look again at the terms. Only those intending to be sahms, or aiming for a career that usually only delivers NMW should be glossing over such a loan.

I’ll use a chunk of my pension to clear ds’ loan, maybe get a part time job as well. I refuse to leave ds up to his gills in debt. Anything I pay can’t be grabbed back under IHT rules either which is useful.