Should we pay off DC's student loans?

[Woollyguru]

I'm having a really hard time trying to work out whether it's worth doing.

DD is graduating this year. She's on plan 2 where the threshold to repay starts at £27k approx, and it will be written off after 30 years. She's got the full tuition fee loan and the min maintenance. So total loan approx £42k

She has a job starting in September which pays £25k in year one rising to £36k in year 2.

She needs to do further training but after that's completed she can reasonably expect to earn min £50kpa which will go up with experience.

I know the repayments will be taken into account when applying for a mortgage.

It's impossible to know her career trajectory and how much she might end up paying back before it's written off. I know in general if you are going to be a high earner and likely to pay it off it's better to pay it off sooner and save on interest.

But the money might be better off going to towards a house deposit.

Has anyone done the maths on this?

@Makingsenseofitall Martin Lewis is correct for the majority who do not have £60,000 in their back pocket to pay it off! He cannot look at every single individual. I suspect most people never read what he said anyway! Why should people pay off plan 2 the loan if they only pay £100 a month?

I think people do understand??

Its a bit like the "pensions are not a benefit" conversations.

I do understand this

So this is ok of you have no intention of paying it off and paying 9% above the threshold….every pay rise the 9% goes up

Loans taken since Sept 2023 are on Plan 5 which are payable for 40 years which is a nonsense

This is terrible in what other financial situation would this happen?

The compounding interest outweighs the payments Thus accruing further debt and earning more your 9% goes up without any hope of paying it down
especially on plan 5 for 40 years for newer loans since 2023

If any other institute loaned money to under 18 year olds without fully discussing it with them, and asking their parents to be involved, they’d be fined heavily. Interest wasn’t even a part of the discussion when I went to uni.

The repayments are a 9% tax.
If you earn more you pay more
If you earn less you pay less

The actual amount outstanding affects neither your repayment level
nor your credit rating.

The point being that those on low incomes will never really pay it off. So their contributions are minimal.

Those on the highest incomes will clear it off fast and not face 30-40 years of repayments.

But those on middle incomes will face a 9% additional tax for most of their working life.

Just help with a house deposit instead if you can afford too.

This ^^ agreed

In addition plan 2 = 30 years at higher interest rate than plan 5 with repayment of 40 years

That’s a good assessment of the impact - our DCs have landed in the middle. A 9% increase on tax on anything you earn over the minimum is quite a high burden.

@whatsgoingoninmybrain You are involved. You have to declare your income. Get involved and get the info. It’s not confined to students.

What?

im someone with loans, not a parent.

you can apply for a student loan without your parents input. You just don’t put in their income. My parents refused to provide the information and that was that - they weren’t involved in the process at all.

the student loans system is inherently predatory. It captures a target market (children who are told they must go to university to succeed), sold in a very loose way (I still remember being told to not look at the numbers because “nobody pays it off”), and the actual interest rate is never fully explained.

nobody told me, when I was 17 and filling in the forms as part of my UCAS application, that the interest rates would mean my repayments were effectively zero. That despite paying back 9% of my income, the loan will still increase by £10,000 in 6 years.

if this were a private financial product it would be a huge scandal and there would be a lot of people who would be entitled to compensation. Instead we’re told to get on with it by the generations who had free, or much cheaper, tertiary education.

It’s disgusting.

@whatsgoingoninmybrain Most don’t at 17!!! Parental income necessary. People said 17 wax too young to know about the loans. That might be the case, but parents usually do get involved and pay up for maintenance!

You can apply without your parents.

parental involvement is limited to providing some information about their income, if they even do that.

parents are not informed of the terms of the loan.

If you have the funds I would keep them for a house deposit so they can avoid the high rent trap which means many people can't afford to save up to buy a house or flat. This will make the most difference to their adult lives.

When people say it doesn't affect your mortgage offers in the future - how is that?

Surely if you make repayments every month, that has time be taken into account when looking at affordability?

I think it’s that the level of debt isn’t considered? If I had £70 grand of credit card debt it would count against me, because it becomes due at some point. But the student loan doesn’t.

It does seem really fishy, that it is treated so differently to any other financial product

It counts as a 9% reduction in salary

the amount of outstanding loan is NOT taken into account by mortgage lenders

@whatsgoingoninmybrain It’s freely available to everyone! They do need to be interested and look. One would think intelligent people would. I don’t like goalposts being moved but everyone should do some research.

No other financial product requires you to do that level of research before taking out a loan. In fact, they are required to present all the facts. This should be no different. The way they sell it, at schools and university fairs, is so different to the truth of the matter that it is almost dishonest.

Ha Ha Ha Ha Ha Ha

Endowment mortgages would like a word.

You mean the mortgages where most borrowers were judged to have been mis-sold the products and therefore received compensation?