'Stopping graduates repaying student loans early...' blog di 4 November 2010 at 11:37AM in Martin's blogs & appearances & MoneySavingExpert in the news 75 replies 9.4K views

Former_MSE_Lee

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "Stopping graduates repaying student loans early would be a terrible mistake" Blog.

Please click 'post reply' to discuss below.

jetfighter

I graduated in 2005 and currently have a student loan debt of about £15k. I pay about £80 a month out of my salary and followed Martin Lewis's advice about not repaying early, but will this change with these new proposals? Will it affect old loans as well as new ones?

I guess what I'm asking is whether the old advice of "Don't repay early - save it instead" still applies? I have no other debts so the money would be spent/saved (usually saved).

oakhouse13

Martin, thank you very much for taking a look at these proposals and sharing your analysis.

Are young people looking elsewhere because I would. We have technology multi-millionaires telling us that the best universities will soon be free. Admittedly what Bill Gates is talking about is not a replacement for three years away from home at university. I think it is time for young people to think laterally about how you educate yourself before you consider taking on the debts being proposed for an education that may be served to you on a plate.

MSE_Martin

jetfighter wrote: »

I graduated in 2005 and currently have a student loan debt of about £15k. I pay about £80 a month out of my salary and followed Martin Lewis's advice about not repaying early, but will this change with these new proposals? Will it affect old loans as well as new ones?

I guess what I'm asking is whether the old advice of "Don't repay early - save it instead" still applies? I have no other debts so the money would be spent/saved (usually saved).

These proposals will (almost) certainly only apply to new students - there won't be a retrospective change (that's never seen as palatable - and hasn't happened with other similar changes before)

sysky

no news here really the government are thieves especially the torries as their sprogs would not need loans.

sharks thieves, vote of no confidence springs to mind,

GET CAMERON OUT OF OFFICE NOW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Clowance

I know we are in a recession, but as we are approaching American style paying for university: - when I was an exchange student at UMASS in Amherst, Massachusetts in the mid 80's it was normal for students to have a job alongside their degree. They also often attended more classes than we did - in fact there was a register and you would flunk if you did not turn up in some cases! The jobs were either on campus (even as a foreign student I was allowed to work, cleaning the canteen in fact) and other jobs would include pizza delivery (this may have been tips only but it was practically compulsory to tip) etc etc. Thus the hard up need not borrow quite so much. Dorm rooms were shared which I imagine kept the housing costs down a bit. The government should look at this aspect as they are raising charges to the roof. Now I have a talented 15 year old who is FRIGHTENED to go to university because of the massive debt incurred (we are unable to help much).
Not everyone has parents to bail them out, and many parents like us will fall above the limit for the child to get a grant, but can barely manage on our joint wage in any case. The impact will be to reduce the number of people going to uni.
And if I had paid for my education in the 80s- after I left uni I worked for 7 years in a decent job when I would have been repaying, and then gave up full time work because of health problems with my baby. After that, I was over the hill to get back into IT and instead, like many mums, took anything from checkout work up. Now I work as a bank PA in the NHS and would earn 18000 a year full time. I would not have under the new system have been repaying for the last 15 years, and presumably would have dropped off the system in another 15 years. But would it impact on my ability to get a mortgage during those years having a large outstanding loan? You bet it would.

Poolie

Just a thought on the possibility of RPI + 3%.

Is this actually enforceable on students post 1998 who currently have loans?

I don't remember signing an agreement that said the Government could start charging interest at commercial rates. The agreement I signed was for a loan that was repayable in real terms.

How can this even be legal? Would it call for a judicial review? Could be interesting getting the original signed copy of the agreement from slc as well.

AlanM

I graduated a few years ago with not one penny of student debt. I'm married with a young family, worked throughout my studying and have a modest family income. I managed this by studying part time with the Open University. My degree is every bit as good as one awarded by other institutions - possibly even more highly regarded by some because of the manner in which it is attained.

Yes, you may miss out on some of social aspect of a traditional university but is the level of debt you will acrue worth paying for the sake of 3-4 years of enjoying yourself?

jetfighter

MSE_Martin wrote: »

These proposals will (almost) certainly only apply to new students - there won't be a retrospective change (that's never seen as palatable - and hasn't happened with other similar changes before)

Thanks very much Martin. These things do confuse me as I've always found the communication from the Student Loans Company to be less than clear.

grastgirl

My modest loan of £15000 (maintenance loan only), paid off at 9% of everything above £15k from a salary of £33k will take approximately 13 years to pay off.

£1620 per year paid off (£135 per month)
£450 added per year in interest (3% assumed)
£1170 actually paid off per year
Total paid £21060

Paying off 9% of everything above £21k from a salary of £33k would take approximately 24 years to pay off!

£1080 per year paid off (£90 per month)
£450 added per year in interest (3 % assumed)
£630 actually paid off per year
Total paid £25920

So this change would mean paying off the loan for the length of a mortgage! And having £90 per month less in your personal cash flow pretty much until your own children go to uni.

On another side, if we were to add the £31.5k of tuition fees as well (I had a year in industry where I paid half fees) I would be 100 before it was paid back (which it wouldn't be as the loan is cancelled at 65ish).

How is this not going to cause another financial crisis for the SLC/government/universities as it will not pay back enough (£28.4k) to cover the original loan (£46.6k)?

Considering I think I have a good salary compared to most graduates, isn't this going to cost more in the long run?

Regshoe

I remember Martin's previous blog when the issue of Graduate Tax Vs. Loan first reappeared a few months ago. To me it seems like this is a move to make the system even more towards a graduate tax.

I'm not too up on what the repayable component of the loans for living costs are at the moment, but with up to £9k a year fee loans plus the living cost loans then students could end up with £50-60k loans (on a 4 year course).

I did some basic calculations a while back when the proposals were for £7k fees and something like 2.25% interest. On some average examples I think you needed to start on £21k in year one and then get something like a 5-10% salary increase (on top of inflation) each year to have any hope of paying the full loan back by the time it would be written off.

Essentially most students will be unlikely to pay off their loanm assuming they are paying £9k fees and accrue more than around £35/40k of debt. In effect this means that what we have is a 9% graduate tax for 30 years (or whatever the write off period is) with a theshold of a £21k salary.

Arguably if they put the fees up even more you could get to the stage where you could almost argue that the Lib Dems had actually pushed the graduate tax through in all but name!

The other point to think about is that even if most students were to end up paying off their loans there will be little to no effect on the cost of education to the government for a number of years. All they are doing is shifting the costs from giving money to universities to loaning money to individuals, there is no immediate cash saving to the government (with the exception of where the new max fees don't make up for the amount of funding cut).

A question I have (and maybe this had already been answered, though I don't recall seeing it asked before) is if benefits and public sector pension etc. are to be uprated with the lower CPI rather than the traditional RPI, will this be changed for student loans too? I'm thinking of both the existing loans and new ones there.

I can imagine places like the OU will be seeing even greater interest in their products from now on, suddenly the £11k I was looking at for an MBA seems rather good value! I can also see the 4 year MSci style courses becoming a thing of the past with people opting to stick with 3 year courses.