Should I Pay Off My Student Loan? 2008/09 article discussion

WastedYouth

Good point oldernotwiser, not thought of the political aspect.

nnneil

Well I've just had a letter through my door , demanding immediate repayment. i had taken loan out in 1990, when it started, but having never earned over the threshold thought i was not in a position to pay back. i moved away sometime in nineties and forgot about it. Now i am told i should have deferred after a certain time and now the account has been passed to a recovery agency. Can anybody advise me ?

Oldernotwiser

nnneil wrote: »

Well I've just had a letter through my door , demanding immediate repayment. i had taken loan out in 1990, when it started, but having never earned over the threshold thought i was not in a position to pay back. i moved away sometime in nineties and forgot about it. Now i am told i should have deferred after a certain time and now the account has been passed to a recovery agency. Can anybody advise me ?

You should have deferred annually if you were below the threshold and if you haven't I imagine the whole amount is now payable. You'll need to try to negociate payments with the SLC or the recovery people if you don't have the funds available. They won't think forgetting about it is any excuse and non payment will affect your credit rating in a way that the student loan doesn't. When it gets to this stage all the normal information from the SLC becomes irrelevant.

Oryx83

My situation – left uni a year ago having taken the full loans. In Oct’07 went working in Japan, more for the experience than the money. To date have earned less than the threshold. Have paid nothing back to SLC yet.

So, if I don’t pay anything to SLC for a while then the amount that I owe will continue to increase every year due to the interest applied. That interest rate is the yearly RPI rate, which is fine if you’re earning and receiving RPI-based wage increases. But I am not, and I don’t earn enough to put money into a savings account.

The actual interest being applied is compound interest – i’ll be paying interest on the interest as well as on the loan itself. In fact this is the case already, ever since I took out the loan (look at your first statement from SLC).

My Question – for this SLC year with 4.8% loan interest, what is the true interest rate being applied to my loan? It’s more than 4.8% for sure. And what is it for the next few years?

Oldernotwiser

Oryx83 wrote: »

The actual interest being applied is compound interest – i’ll be paying interest on the interest as well as on the loan itself. In fact this is the case already, ever since I took out the loan (look at your first statement from SLC).

Why do you sound so surprised at this? If you had money in a savings account the interest you received would, in turn, earn interest on itself. Compound interest is a normal financial concept, not the work of the devil !

Oryx83

Sure, compound interest is a normal financial concept. But as i said, i don’t have spare money to put in a savings account, so I can’t make money to offset the SLC interest. Its just that, seems from reading the posts that some people don't realise that the interest on their loan keeps growing at a compound rate, not at the flat SLC annual rate. And if they don't repay anything then the size of their debt escalates in a compound fashion. To put it simply .. for a loan of £10000 a year ago at the SLC interest rate of 4.8% and making no repayments means today you owe £10480. In 12 mths time at the 2008/09 interest rate of 3.8%, if you've made no repayments you will owe £(10,000 + 480) x 103.8/100 = £10,878.24. In 5 yrs time at that rate and no repays you'll owe £12,628.39 which is an average interest rate over the 5 yrs of 5.2% pa – not 3.8% or 4.8%.

Oldernotwiser

Oryx83 wrote: »

Sure, compound interest is a normal financial concept. But as i said, i don’t have spare money to put in a savings account, so I can’t make money to offset the SLC interest. Its just that, seems from reading the posts that some people don't realise that the interest on their loan keeps growing at a compound rate, not at the flat SLC annual rate. And if they don't repay anything then the size of their debt escalates in a compound fashion. To put it simply .. for a loan of £10000 a year ago at the SLC interest rate of 4.8% and making no repayments means today you owe £10480. In 12 mths time at the 2008/09 interest rate of 3.8%, if you've made no repayments you will owe £(10,000 + 480) x 103.8/100 = £10,878.24. In 5 yrs time at that rate and no repays you'll owe £12,628.39 which is an average interest rate over the 5 yrs of 5.2% pa – not 3.8% or 4.8%.

You may be right that lots of people don't know this - the ignorance of intelligent adults who have signed legal contracts never fails to amaze me! However, the conditions of the loan are set out quite clearly at the beginning and the loan calculations are much the same as any other loan, only at a lower rate of interest.

The_One_Who

I may be wrong, but aren't all loans, credit cards, etc using compound interest? To be honest, I'm hoping to get a job after I graduate, one that has quite good progression prospects. I'm not really worrying about my student loan, escalating in interest or not.

jacquie

Hi

I am starting a 4 year (foundation entry) degree next month. I am a mature student. By the time I graduate I will not have 25 years to work before retirement. Will I need to pay it back before I retire as I probably won't have over £15000 income when I retire. Thanks for any feedback.

Chris2685

Interesting read here.

I was one of the sensible ones who took out a student loan 'just in case' (I didn't need it as I worked enough to cover the costs of going to uni). I put the loan into an ISA every year, and am not planning on repaying it, as I am making a lovely amount of interest on 4 years worth of ISA payments now .

Background: I have a job as an IT contractor, and due to being a contractor I offset much of my earnings as expenses, so I am not taxed on some of my income each month. I am not self-employed, but employed through an umbrella company.

The question I would like answering is: Do they take the earnings into account as 'Gross taxable earnings', or do they take your entire gross income into account? I think they should only take my taxable earnings into account, because that is the whole point of expenses isn't it? You spent the money in order to do your job, so it is not classed as 'real' earnings?

My second question is: What do people expect the rate of interest to be next year? With inflation rising heavily, it seems to me that the rate could go up a lot!

My last question is: Does anyone know when the loan gets written off (if it ever does)? I've seen a few people asking that question in this thread, but no answers seemed to be forth-coming.

Thanks for any answers!