Early-retirement wannabe

taktikback

Yes, that was a poor choice of words -sorry

The point I was trying to make was that we are not talking about conventional debt, more accurately, a deferred tax liability.

For example,If a student were to earn an average of 31k over the next 30 years (at today's prices) they would pay 27k in additional tax and then the loan is written off - so unless you are going to be a high earner, the interest accrued is irrelevant -and even if you are a high earner, you could argue that clearing an average student "debt" would cost you £50k, and that £50k would be far more beneficial to the student as a deposit on a house....

Clearing a student loan is a bit like volunteering to pay unnecessary tax in my view..

but I take the point on the choice of ultimate career and success in it. There is a calculation to be done...

Probably best to wait 5 years to see how things go, then either hit the loan if things are going well, or hit the property market if they don't quite go to plan...

jamesd

The choice for many will be 6% interest or a property deposit and lots of money saved by buying instead of renting. The pay up front choice is likely to be best mainly for cases where there is enough money available to both pay for the education and pay for a property deposit. For others, the money saved by borrowing will be likely to be greater than the 6% cost of that borrowed money.

gadgetmind

taktikback wrote: »

The "debt" isn't a debt

Yes it is.

it's just a deferred tax liability @ 9% of income over £21K -and it all gets written off after 30 years.

Only if you haven't paid it off already.

And 9% of income over £40k could easily result in some paying 49% or 54% "tax" on a large percentage of their income.

Only simpletons pay it up front...

Simpletons will probably not have the earnings trajectory for it to be worth them paying up front, but smart people may well be better of ditching this debt ASAP or avoiding it entirely.

jamesd

Even a smart person is quite likely to be better off taking the money, getting an owned property, then doing the paying off. If someone was to offer them the choice of paying for the education or paying for the property deposit.

gadgetmind

taktikback wrote: »

For example,If a student were to earn an average of 31k over the next 30 years

... then they might have well not bothered going to university.

I've put together a spreadsheet that models the whole situation. Yes, those taking degrees that are effectively just raising the school leaving age to 21 are better off with the loan. Those taking STEM degrees, who are prepared to work hard enough to achieve 2x (or 3x or 4x) of the salary number quoted above, will be better off without it.

taktikback

well -university isn't just about earning power, it's about making lifelong friends and developing the passion for learning in a new environment. I would point out that £31k equates currently to a reasonable teaching salary, and one would have to earn around double the national average -say £50K+ to make paying up front make sense.

For the majority of graduates salaries beyond that are for the chosen few...

gadgetmind

taktikback wrote: »

well -university isn't just about earning power, it's about making lifelong friends and developing the passion for learning in a new environment.

And that's worth accruing debt at the rate of £15k pa for 3-5 years?

Sorry, if you don't acquire valuable (and marketable!) skills then you've wasted three of the most productive years of your life.

I would point out that £31k equates currently to a reasonable teaching salary, and one would have to earn around double the national average -say £50K+ to make paying up front make sense.

And £31k is what many STEM grads can expect to earn within 1-2 years of graduating. £50k is achievable for those with a good mind even if they don't want to move into management.

For the majority of graduates salaries beyond that are for the chosen few...

Chosen? That sounds remarkably passive, which isn't an attribute I've typically encountered in those with £50k+ salaries.

Perhaps rather than "chosen few" we can go for "driven few"?

Marine_life

taktikback wrote: »

For example,If a student were to earn an average of 31k over the next 30 years (at today's prices)

I just dug out this link http://www.big4gossip.com/pay/basic-salaries/34-pay/basic-salaries/119-london-transactions-and-corporate-finance-salaries

Click on "transaction" - this is my field of work.

It shows that you will hit your "average" in year 2 - where you go after that depends on whether you are good enough but I would expect that a well-qualified university student (from a proper university) will make it to manager level and if you don't make it beyond that then many go to jobs with clients.

As gadgetmind said - I think if your ambition is to make average salary after uni then your are fundamentally missing the point of going in the first place or are doing the job for lover rather than money.

mildredalien

Objectively I agree with you gadgetmind, when I went to uni I paid maybe £3k in fees and had £9k total loans. If I knew I'd be leaving with as much debt as today's students, I might have thought twice about it or even made a different decision.

However, it's not as easy as that and I have to say the attitude of 'if you work hard you can earn 3x as much' is grating.

In my field (a health profession) you HAVE to have postgraduate level qualifications in order to practice which these days means a hell of a lot of debt unless you are lucky enough for your place of work to subsidise some of it, and these days with cost cutting everywhere many won't. However, as a newly qualified professional I'm looking at a salary of ~£30k, which could rise to maybe £45-£50k over the length of my career but certainly not much more than that and not very quickly. It took me 8+ years to qualify (somewhat quicker than average), including my undergraduate degree, and all of this time was spent on a low or at least below average salary.

Did I waste my time at Uni? Did I laze around and not work hard enough to not justify a high salary? I'd say no, but my chosen profession doesn't automatically qualify me for a high salary and is pretty poorly paid compared to many careers. I could argue the fairness of that but it's just the way it is. I chose a health profession for many reasons, the salary wasn't one of them. I've worked VERY hard to get where I am, and you cannot get qualified without drive and ambition. Unfortunately it just happens that my career rewards that in job satisfaction rather than cold hard cash.

Anyway, I've been reading through 'the millionaire next door' this weekend, and one significant thing I took away was not to take out a mortgage that is more than twice the value of the household earnings. Makes a lot of sense, and I'll need to try and bear that in mind over the next couple of years as we save for a deposit! The first step to early(ish) retirement for me will be getting on the property ladder and then getting mortgage free ASAP.

bigadaj

Isn't this argument all a bit academic anyway as if you haven't got the money anyway you don't have a choice. The new interest rate on loans is obviously a game changer but not paying the debt initially would make some sense, better to confirm likely earning power and absorb costs for a couple of years, thus reducing risk either way.

The radically increased numbers of students make this difficult to assess as many wont be earning huge amounts, even those from good to xcellent universities as the supply and demand effect takes effect. It seems difficult to get objective assessments of both salary ranges alone and those related to qualification but volunteering for a debt that has a limited repayment may be more sensible for many.

The other problem is that high earnings gs are frequently confined to financial services, even after the disaster if the last few years, being qualified in science and technology subjects still means that knowledge accrued is simply being used as a filter to supply accountancy firms and similar. So if you do undertake a vocational course then you are less likely to pay the full amount than by following a financial or possibly managerial path.