Guide discussion: Should I repay my post-2012 student loan?

gloucesteroldspot wrote: »

One of the things that has shocked me about my daughter's student loan is that the interest is charged monthly and then of course compounded. This means it spirals upward very fast. I don't know about anybody else but my ISAs don't work like that ( I wish they did!). I certainly didn't clock this when looking into the loan originally. I wonder if this is not a case of mis-selling? Just try asking the SLC what the real AER is.

The AER is the published rate for the year. Just because it's applied monthly doesn't change that.

It's just like asking for your interest on a savings account to be paid monthly - the monthly rate is a bit less take into account compounding.

badmemory wrote: »

What guarantee is there that the government won't retrospectively change the fact that these loans will not be reported to the CRAs whether or not they are sold off to their mates (at well below mates rates).

If the electorate were to throw all political parties under the bus who make promises they subsequently do the opposite of, this would act as a guarantee. (Sorry to give a borderline political answer in a good quality debate, but it was a good enough question to justify an answer).

Did raise a slight eyebrow at Martin's suggestion that a supermarket shop for someone who has just graduated would cost £100 a time though.

I am not currently a student ( I graduated more than forty years ago) and I applaud Martin for his efforts to put this issue into perspective. It would be a great step forward officially to remove the concept of 'debt', with all its bad connotations of millstones round necks, ultimate personal bankruptcy and even the Marshalsea. If you must think in terms of debt, then try comparing it to the so-called ' Third World ', where countries borrowed money they struggled to pay back and were eventually in such dire straits that the lenders were forced to cancel the debt completely. With student finance you may feel you struggle to pay it back, but unlike ordinary debts like mortgages, car loans and the like, there is no life-long millstone and the system has a built-in guarantee that any liability to repay the sum outstanding disappears after thirty years. Wouldn't developing countries have loved a loan like that. What today's graduates have is a Personal Payment Plan and while Martin's description of a 'graduate contribution tax' is a bit clunky, it's accurate and is the best one available. I certainly haven't yet thought of a snappier title.
Is it a good deal? Well, try applying the system to a house mortgage instead of a student loan. If you think you might currently be able to afford a £150,000 house, wouldn't you like to be able to go to the government , who would give you the money to buy the house and then say you need only repay a small percentage of what you earn above a low benchmark? What we'll do is add interest onto the sum outstanding, but after thirty years, whatever the total, it will be written off and you'll still own the house? An even better deal, you apply for a house costing £450,000 ( because it's just up the road and has a dedicated parking space) and the government still give you the money, still only want the same repayment as for the cheaper house and still write off the much-larger accumulated sum outstanding after thirty years!
You can call such a mortgage comparison absurd, but that just illustrates why the Graduate Contribution Tax is different to a normal debt.
The universities obviously understood the reality of the system, which is why they all queued up to charge the maximum amount for course tuition. They get the maximum money from the government up-front and leave the government to worry about reclaiming graduate contributions.
I went to university 1968-73, when course fees were paid directly by government and I received a maintenance grant. No repayments required. However, the reasoning was that graduates were probably going to have a much-better paid career than if they didn't go to university, so over a working life of forty years the Treasury would get back much more in tax than it would otherwise and the investment was worthwhile. Importantly, however true this was, no-one could quantify it.
Was I better off than today's students? It seems to me that in important respects the modern system is the same as that of yore. Course fees are still paid by the government and the student still receives money for maintenance. The difference concerns the attempts to quantify the students' contribution to defraying those costs over a working life. In my day it couldn't be done, so no worries were generated. Now an individual sum can be attached to each graduate and you can track how much he or she is contributing each year back into the nation's coffers. This insistence on information, transparency, call it what you will, generates the anxiety. So yes, I probably was better off, but only because I was more positive about graduating because no-one bothered to keep telling me how much I owed the state.
One final thought . As to the politics, Mr Corbyn and the Labour Party should be supporting this system for its pure Marxist credentials. If I may re-order Karl's phraseology from 'The Critique of the Gotha', the student loan system fits exactly " to each according to his needs, from each according to his ability ( to pay-my italics)

silvercar wrote: »

Obviously adjusting for inflation, but even if you won't pay it all off due to high interest charges, if you would otherwise pay more than the amount you would pay to clear it now it is still worth doing.

Not quite. You also need to take into account what you can do with the money if you keep it, rather than paying off the loan. If you pay off the loan, then you have lost the opportunity to use the money for other things for the rest of your life.

You can put it in a savings account, to earn interest. You can invest it in equities, to earn dividends and capital gains. You can boost the previous two by 25%, in a LISA. You can use it as a house deposit, which reduces your interest costs because you are paying interest on a smaller mortgage and also because the higher deposit reduces the interest rate on the rest of the mortgage. There's a pretty good chance that this will earn (or save) you more than RPI +3% per year, on average.

You need to compare those earnings (or cost savings) with the extra interest you would actually end up paying on the loan if you didn't pay it off. Worst case, this is RPI +3%, but almost no-one will pay this much.

setmefree2 wrote: »

As a parent of 2 post 2012 graduates if I have £36k (each) to clear their debts wouldn't I always be better off paying it into a LISA for them?

setmefree2 wrote: »

Or put £12k into the more flexible Help to Buy ISA? Boosts savings by 25% if you buy a house but more flexible if you want it for something else before 60.

You wouldn't be able to put all your money into their LISA or HTB ISA at once because of the funding limitations. A 100% equity S&S ISA would be a good flexible place for larger funds if you are investing for the long term to beat inflation.

setmefree2 wrote: »

Ditto for a student who can afford to pay anything off a student loan - wouldn't they always be better off investing in a LISA or H to B ISA?

A graduate with spare money after all outgoings is most definitely better off paying into a LISA or HTB ISA if they are first time buyers due to the 25% bonus.