Student Loan 8% WWYD

[mumof5andfat]

My daughter who is currently studying in a STEM related degree is about to go into 3rd year. The interest payments on her student loan give us both the shivers. I know the advice is always to take it and see it as a 'graduate tax'. I wanted this to be her responsibility, but now I'm feeling very guilty about such a huge debt hanging over her. Yes, i could pay some of it off for her now, but i have other children younger than her, so whatever I do for her, I should do for the others in the interests of keeping things equal between them. I thought interest rates on student loans were minimal (no idea where i got that idea from, obviously I was very wrong). considering the Bank of England has cut interest rates, what is everyone's view on the interest rates of Type 2 student loan in the near future. Is it just me and my daughter that get stressed out looking at the amount increasing per month?

I would continue to see it as a graduate tax. You have to earn above a certain amount before you start paying it back. My advice would always be to save the money you would use to pay it off and put it towards a house deposit instead.

Yes to all this.

Yes, i could pay some of it off for her now

Don't do this. Unless she's likely to be a very high earner, you very likely wont actually reduce the amount she pays back.

Plan 2 loans are written off after 30 years. Unless she's a high earner (unlikely if she ends up in science!), it doesn't matter how much she borrows or how high the interest rate is.

If you have spare cash, save for a house deposit.

For current students it's estimated that about a third if that will pay off in full. Unless she uses her science degree as a gateway to banking, law or similar, she's unlikely to be one of them unfortunately.

It's far more likely that any money you pay will be completely wasted as it won't even reduce the amount she has to pay. Have a look at:

https://www.moneysavingexpert.com/students/repay-post-2012-student-loan/

If you have money to give her, it will be far more useful as a house deposit.

However, from the current academic year, they've changed the system and, while I think the interest rate is lower, the threshold and time before the loan is written off is changed, students will pay far more and it's predicted that more like 70% will pay back in full.

I agree with you, OP. What a racket.
But, yes, don't try to pay it off unless she becomes a very high earner

the way that inflation is going (especially now that junior doctors will get 20% increase which will no doubt set off a number of other professions asking for similar rises and thus stoke inflation even further), I'm guessing that a lot of the students will start paying off their student loans much sooner than we anticipated, but of course, that's just a prediction my end. I'm sure our government has everything in control. 8% interest is still ridiculous, much, much higher than any mortgage interest.

But if you don't pay off the capital, the interest rate is irrelevant.

Improving pay of underpaid public sector workers to begin to right some of the injustices of 14 years of Tory government won't significantly impact on inflation either.

when you look at this way, then yes, its true. thank you

8% interest is still ridiculous, much, much higher than any mortgage interest.

And is your dd (and any other 18 year old) able to get a loan secured on a property in order to fund their degree? No. So the comparison is stupid - a better comparison would be to a credit card or unsecured loan - although again most 18 year olds wouldn't be able to get one of those either.

But yeah, blame the doctors and other public sector workers eh.

I wasn't blaming any of the public sector workers, just stating the facts, that increasing the wages by such a huge amount will have some repercussions. like it or not. Yes, I agree that they haven't been paid enough. Apologies if i hit a nerve

@mumof5andfat unless you can pay the whole loan plus interest off in one go it’s not sensible to pay part of the loan. This is because the interest rate is just going to see the debt continue to rise.

If you have got a lump sum, using it as part of a house deposit would be a better approach.

Your feelings are not unusual as many of us like to not have any debt plus the 8% interest rate is very high.

Thank you all for your replies. I've also realised my mistake on the interest rates. Student loans are actually linked to RPI, not the Bank of England Rate..oops. I also now see why its pointless to pay a part of the loan off, as the rest will continue to accrue interest, so in the grand scheme of things, it probably won't make much of a difference. I think I'll keep that money for something more useful.

What a stupid post saying you should compare a loan of tens of thousands of pounds to a credit card rather than a mortgage. Financial literacy is non-existent in this country