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'Will new student loans stop you getting a mortgage?' blog discussion
in Martin's blogs & appearances & MoneySavingExpert in the news
31 replies 10.3K views
Former_MSE_Lee Former MSE
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 "Will new student loans stop you getting a mortgage?" Blog.
Please click 'post reply' to discuss below.
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AND annual payments will be less than they are now - so why all the protests?
So all of these students down in London protesting will actually be BETTER OFF than I am on the old student loan system????
Also this comment didn't make sense to me
"Actually my biggest worry over this is the psychological one. Many students wait until they’ve cleared their student loans to get a mortgage and you can understand the sentiment why.
Why would people wait to pay their loans off before getting a Mortgage... I know no one that has done this?
The fact that the repayments are so small mean you would be waiting a long time to get it paid off and the low interest rate on it means it doesn't make sense to pay off sooner.....
Just noticed MDR86's post.... I too think Martin has it the wrong way around... I am on the old system and thought I diodn't repay until over £21k..... not £16k.....
As a graduate who is intending to earn as much money as I possibly can I think I would be a lot worse off (in the long term) under the new system, currently I expect to be paid up in around another 10 years, under the new rates I would probably be looking at 20-30 (if at all). That said it wouldn't have put me off going to university.
I would agree the new system will be progressive in terms of protecting those who don't go on to earn as much - as they will likely have their loans written off wheras the high earners will pay back everything with plenty of interest. This then raises the argument of whether it is right that high earners should be subsiding the system in this way, when this already happens more generally through PAYE and NI. Of course at this point you get into the fairly theological/socialogical argument of "is it fair that those who earn more pay more, or should everybody pay the same, or should we make sure that those who use particular services pay for them? (e.g. private health care, private education, more toll roads, road tax based on mileage etc.)"
One of the complaints that keeps cropping up and really irritates me is people questioning the affordability of university. Affordability under the new system and rates is the same as the old system. As the fees are all collected in arrears and in the form of a set percentage affordability doesn't enter into it. You could legitimately argue about whether you find the costs acceptable, i.e. whether you are willing to pay 9% of earnings over £21k for potentially 30 odd years. (Thats under Acceptability rather than Feasibility on the Johnson Scholes SAF model for any saddo accountants out there!)
Arguably these £9k fees are more affordable (up front anyway) than the £1k fees that were in place when I went to uni (2002) as the £1k fees had to be paid up front, or at least during the year of study.
A little more on topic - as I said before it will be around 10 years before I pay off my loan (that's assumign some decent pay rises too) and I will be looking at getting a mortgage in the next couple of years. I have to say that the loan payemtns haven't really affected this decision, though I suppose it might have some small impact on how much I feel comfortable borrowing when I compare my monthly net income against the monthly repayments.
Nope, they were protesting over the increase of fees from circa 3k to circa 9k a year. They're going to owe £18,000 more when they finish their degrees than students finishing this year will.
They'll be better off in the early stages of their career than we (people with older loans) are due to the higher threshold. At the point where we pay our loans off, they'll still have the extra £18k they had at the beginning, plus £540 a year as a result of reduced payments (9% of 21k-15k thresholds) and the compounded interest on all that on their balance. Obviously from that point on they're worse off on their take home pay (granted they've got £540 a year extra they've already been getting up to then to match us overall).
All these figures are of course based on students paying off their loans in full:
The current system (2%, 15k) requires a steady wage of around £35k a year over 25 years to repay the loan before it's wiped.
Over 30 years (2%, £21k) you'd be earning £34,300pa so the initial 25 years your cash in hand is pretty much identical to the 35k on the old system as your lower earnings offset the reduced payments. For the next 5 you'd be worse off by £1200 a year.
If you're earning less than those figures the new interest rates and fees mean absolutely nothing to you as you wouldn't even pay the old fees off. (slight disclaimer on that extra 5 years)
If you're earning more than that it complicates things* because you'd pay it off earlier under either scheme and therefore the higher threshold delays your repayments costing you money at an earlier date, and the increased interest rates on the new system become an issue.
*I'm doing most of this in my head/from memory of the discussion last week so I'm not starting to work that out.
**The differences in some figures from last week are because I didn't realise the there were already 3 sets of loans in existance. I thought we just had the pre '98 loans (no idea how they work) and the post 98 ones (inflation, 15k, wiped when you're 65). I didn't realise we had a 25 year limit post 2006 so I was basing the new system on 25 years not the 30 I'm seeing in places now. (although all figures were comparative)
Thanks to the poor financial education system in this country, and the media's apparent desire to misrepresent things to cause confusion I'd be surprised if many of them knew anything about the new loan system other than the 21k threshold though.
now with the current climate some people are being turned down for a mortgage because of there overall debt ( both student loans and CC debts/ loans)
The future students will also pay a much higher rate on the £21,000 debt and may even be prevented from paying the debt off early !
Even graduates who get mortgages a long time after graduating can be winners, provided they are investing the extra money that they have available from the lower repayments. Investments on average over the long term pay more than competitive personal loans charge in interest. Most won't do this but willingness to invest is one of the key factors that causes well off people to become more well off and that keeps the less well off people poorer than they could be.
Couple of things I would disagree with here. Firstly, "Nobody should let this change discourage them from going to university." That's not true: even under the old system male arts graduates were worse off going to university. E.g. see here
I would guess quite a few more people will be worse off going to uni, particularly in arts and humanities.
Secondly "...you have to be making at least as much as the average person makes." The figure of £21k salary will be increased by inflation from 2016 by which time it will be worth considerably less than it is now and £21k is already a bit less than average salary anyway.
The financial crackdown on curbing government borrowing is being passed on to students from England but there is no guarantee that they will be able to pay back more than a piffling amount over an extended period of time.
Is there a report that can show how the new system will generate revenue over the time that it is in place? I appreciate that most of it would be pure speculation.
It's important that we ensure that this doesn't discourage those from less affluent backgrounds from going to university by overstating how bad this is.
I didn't write about the average salary, I wrote about the salary of the average person, the median salary. That's lower than the average salary because the relatively few very high earners have a big effect compared to their numbers.
The threshold and salaries will both presumably increase with inflation over time.