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'Don't pay your kids tuition fees upfront' Discussion Area
Comments
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It looks like the government is going to retain the ability to manipulate the variables such as the 21k base , without stating how it is to be done over the term of the loan.
Wrong, it's based on RPI. Just like ISA allowances.There is £100,000 difference between the two calculators which is correct?
Read my posts, there are assumptions based on RPI. The calculators will use different assumptions.How will anyone check that the payments taken are correct if the variables are not defined?
Ridiculous. You clearly do not understand how it works so I will try and explain.
Interest is X + RPI. The March RPI is used in the following September for the next year. For example, if March's 2014 RPI is 2% then from September 2014 - August 2015, the interest rate will use the 2% RPI for interest rate.
The same will go for the student loan allowance. So if it is £21k + 2% then it will rise to £21,420. This will be set for the following year.
It isn't difficult to work out what you repayment will be when you know how much you will be paid. Just like tax. You can work it out.0 -
I do understand the risk 100K Difference 25k to pay back or 125k to pay back.
IF RPI increases does it get worse or does this only happen if average pay increases, are the variables defined in the terms and conditions or can the SLC change them?
what controls the sliders in the MSE calculator.
Its a total joke if you earn over 22k and depending on other factors you may pay back 25k or you may pay back 125k.
There is only one product so there is no competition. wheres the market forces?
Interest of 6.6% for the first 3 years 5k on 38k has a huge impact over the 30 year term.
If RPI went up to the 50 year average of 10% for the next three years this would be over 10k of interest on a 38k loan .
If you sign up to a bank remorgage AT 2.3-3% for three years , thats the deal. and you go back to the competition in three years for the best new product.
You can not with any reasonable accuracy calculate the figures as you can with 2,3 ,5 or 10 year morgages. The product is front loaded with interest which means if you dump it at year 4 you have already paid well over the cost of borrowing elsewhere.0 -
Hi Daisydog I understand where you are coming from but a couple of thoughts...Based on my research this is my solution.
Im going to do a deal with my daughter.
I will pay the student loans by borrowing at 2.9%, or by using my below inflation cash ISAs.
This will save the family about 30k 2.9% against the interest on the borrowing 6.6% *over 21 years repayments
or 52k if i use ISA money.
Women can spend quite a bit of time out of the work force if they decide to have a family. At this point they won't have to pay anything back to the SLC. Thus, any benefits of paying upfront will probably be negated.
Also, are you sure your daughter or son won't want to go traveling, join a band, become an artist or actor, or do a PHD? Once time out is taken into account a lot of the benefit of paying up front is diminished if not eliminated.
There is definitely a case for paying upfront if you feel highly confident that more likely than not your child/ren will stay in the work force continuously and they will earn a high wage from an early point in their career and that you yourself can easily afford to pay up front. However, don't under estimate the money you will have to find. (The tuition fees are £9k but in my experience living costs are about the same - so you will need to find £18k pa.)0 -
I do understand the risk 100K Difference 25k to pay back or 125k to pay back.
IF RPI increases does it get worse or does this only happen if average pay increases, are the variables defined in the terms and conditions or can the SLC change them?
SLC won't change them, whatever rules are when you take out the loan are what they are. They may change for future generations (for example, there is pre 1998 rules, 1998-2012 rules and 2012+ rules at the moment).what controls the sliders in the MSE calculator.
No idea.Its a total joke if you earn over 22k and depending on other factors you may pay back 25k or you may pay back 125k.
It isn't a joke at all. It's based on RPI.
Pension annuities which are index linked are also the same.
Index linked savings certificates are also the same.
There are many financial products which are RPI based. It doesn't make them a joke.There is only one product so there is no competition. wheres the market forces?
I am sure it has been thought about by the banks, and if it was good for them, I am sure they would have done it by now.Interest of 6.6% for the first 3 years 5k on 38k has a huge impact over the 30 year term.
Yes and I do not agree with that rule, I think it is terrible. But then again, if you die the day after graduation you get to put a massive middle finger up to the government eh!If RPI went up to the 50 year average of 10% for the next three years this would be over 10k of interest on a 38k loan .
Yes but then you would have a massive increase in the student loan allowance and your payments wouldn't go up. You would also be more worrying about the price of food than a debt that gets wiped after 30 years.If you sign up to a bank remorgage AT 2.3-3% for three years , thats the deal. and you go back to the competition in three years for the best new product.
You can not with any reasonable accuracy calculate the figures as you can with 2,3 ,5 or 10 year morgages. The product is front loaded with interest which means if you dump it at year 4 you have already paid well over the cost of borrowing elsewhere.
No you can't, but you are stupid for trying to compare to entirely different products. You will never get a clear comparison.
Then again, if you want to take out a nice mortgage for your daughter, and she dies after graduation you have lost a lot of money, whereas with student loan, nothing has been lost (obviously I am not saying I want your DD to die, but there are advantages to the student loan that you seem to have missed).
As setmefree has also pointed out, having children are another bonus to the student loan. If she does, does she have to keep paying you back at £400 a month?0 -
Its a complex issue trying to quantify risk.
Average starting pay from her course at the University she hopefully will get the grades for is £27500 pounds, This is what I have used as the base
400 per month is the SLC payment at about year 10
you could do the calc investing £496 in the isa in the first year and £7277 in the last year, but as i stated its hard , my guess is that on 3% it would be about 140k after 21 years.
Its no different from the SLC contract and the money would be hers not theirs.
worst case senario is she does nothing for 21 years and I waste £38,200
Best case senario is that after 21 years she has a 170k gain over anyone who takes out the loan and has an average job.
Its a Gamble
-£38200 against +£170,000
I trust my kids, It looks like good odds to me.
If the SLC loan was at 3% and was capped at say 4.5% I would not have a problem.
I would never borrow money at 6.6% variable with no upper limit
The RPI over the last 50 years averaged 9.93%
The RPI over the last 30 years averaged 7.45%
If the RPI increases the interest on savings will increase and the gap between the SLC and self funding and then saving widens.
The case for the SLC does not get any better
Leaving aside the financial side of things, I find your post (and attitude) truly terrifying.
You have a daughter who hasn't yet taken her A levels and you're already making plans for her based on the expectation of earning a high salary on graduation and earning over £75,000 pa by the time she hits her 30s. Does she have any say in this, might she want to have a gap year afterwards, might she even want to have a baby? Or perhaps in her parentally controlled world that isn't allowed?
You may be thinking like this for the best of motives but you cannot plan your children's lives in this way and you shouldn't even want to. You may be able to make your daughter do what you want when she's 17/18 but heaven help you both if you're still trying to do this through her twenties and into her thirties!0 -
Wrong, it's based on RPI. Just like ISA allowances.
Wrong. The repayment threshold for post-2012 loans is not based on anything at the moment. The government has said there is an intention to uprate it by average earnings from 2017 but this is only an intention and not a guarantee and in any case is dependent on whoever is in government then.
The repayment threshold for 1998-2011 loans is currently being uprated by RPI up to and including April 2015. After that it is set to be frozen at whatever it stands at then, unless the next government make a decision to do otherwise. This threshold is being uprated by RPI as this was Labour's original intention when they raised the threshold to £15000 in 2005 and froze it at that amount.
This just proves that the terms and conditions are variable on these loans. Future governments can decide to freeze/lower repayment thresholds as they please. The question is not whether they could, but whether they would. Well, I'd put money on the £21k threshold being frozen for a good few years yet since earnings are not as a high as the government initially thought they'd be now, so the system is set to cost more than originally expected. Government will now seek to do what it can to get the result it wants, and freezing the threshold is a less politically explosive thing to do, as by doing this they are not changing any terms. Any uprating in thresholds is done as and when - there is no legislation for it to be done automatically and it's certainly unlikey they'd use RPI with it being fairly high!0 -
Wrong. The repayment threshold for post-2012 loans is not based on anything at the moment. The government has said there is an intention to uprate it by average earnings from 2017 but this is only an intention and not a guarantee and in any case is dependent on whoever is government then.
The repayment threshold for 1998-2011 loans is currently being uprated by RPI up to and including April 2015. After that it is set to be frozen and whatever it stands at then, unless the next government make a decision to do otherwise. This threshold is being uprated by RPI as this was Labour's original intention when they raised the threshold to £15000 in 2005 and froze it at that amount.
This just proves that the terms and conditions are variable on these loans. Future governments can decide to freeze/lower repayment thresholds as they please. The question is not whether they could, but whether they would. Well, I'd put money on the £21k threshold being frozen for a good few years yet since earnings are not as a high as the government initially thought they'd be now, so the system is set to cost more than originally expected. Government will now seek to do what it can to get the result it wants, and freezing the threshold is a less politically explosive thing to do, as by doing this they are not changing any terms. Any uprating in thresholds is done as and when - there is no legislation for it to be done automatically and it's certainly unlikey they'd use RPI with it being fairly high!
Not sure I completely agree.
It says in the white paper that the threshold uprated annually in line with earnings.
I don't think they can just say "Nope not this year.". There will be a method behind the madness, otherwise they would be opening a can of worms by not having an index of any sort.0 -
Not sure I completely agree.
It says in the white paper that the threshold uprated annually in line with earnings.
I don't think they can just say "Nope not this year.". There will be a method behind the madness, otherwise they would be opening a can of worms by not having an index of any sort.
It was in the white paper but it's not in legislation (yet). The government have made it clear that this is their intention. It may well not be their intention (or the intention of the next government) when it comes to the time if the treasury have their way (they're monitering this new system like hawks at the moment as most believe it's not sustainable)...0 -
The terms of the loan are set in legislation which is changeable by parliament.SLC won't change them, whatever rules are when you take out the loan are what they are. They may change for future generations (for example, there is pre 1998 rules, 1998-2012 rules and 2012+ rules at the moment).
There's an article here discussing the potential freezing of the repayment threshold:
http://www.guardian.co.uk/education/2013/may/06/student-loans-repayment-level-lowered
"That repayment rules for existing loans can be changed at the stroke of a ministerial pen shows the urgent need for a law to protect terms and conditions for student loans." Protection was promised but never delivered, he [NUS President] says.0 -
The terms of the loan are set in legislation which is changeable by parliament.
There's an article here discussing the potential freezing of the repayment threshold:
http://www.guardian.co.uk/education/2013/may/06/student-loans-repayment-level-lowered
"That repayment rules for existing loans can be changed at the stroke of a ministerial pen shows the urgent need for a law to protect terms and conditions for student loans." Protection was promised but never delivered, he [NUS President] says.
Yes and to be fair, when I took student loan I wasn't expecting my threshold to raise. I don't think it would be wise for them to do anything though, it would be a political nightmare.It was in the white paper but it's not in legislation (yet). The government have made it clear that this is their intention. It may well not be their intention (or the intention of the next government) when it comes to the time if the treasury have their way (they're monitering this new system like hawks at the moment as most believe it's not sustainable)...
Yes it would be a massive shame. Not quite sure why they don't just have a graduate tax!0
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