'Will new student loans stop you getting a mortgage?' blog discussion

gauly

jamesd wrote: »

That's a reason not to go to university but for that case it already didn't pay to go to university in income terms, so it didn't change from being good to bad. In the context of the change blocking poor people from going this is a more interesting quote: "those from the poorest backgrounds were likely to make the most gains - increasing their salaries by around 19 per cent over their lifetimes compared with just 8 or 9 per cent for those from middle class and more affluent backgrounds".

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.

That is an interesting point (that university is more valuable for those from poor backgrounds) and something I didn't notice. I still think there will be more people for whom university doesn't pay (on average) than under the old scheme, but of course the maths is very complicated.

jamesd wrote: »

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.

I was meaning median as well, which is the most logical average to use for salaries. The median full-time salary is just over £25k, the median for all jobs is around £21k (I think I've only seen the full-time median quoted before, so using the second figure you are right and I'm wrong, £21k is average).

The problem is the threshold only increases from 2016 (that was in the recently passed legislation). Assuming inflation at about 3% then that is equivalent to a salary in 2010 of around £17.5k. Salaries do tend to increase faster than inflation normally though. It will be interesting to see how generous £21k looks in six years time (particularly if inflation takes off!!)

poppy10_2

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MSE_Martin

poppy10 wrote: »

Poor form for MSE to be emphasising the monthly repayment figure in claiming that the new system will somehow magically result in people being better off, even though they will have more debt and will be paying this off for longer.



Would you post a guide recommending everyone switch their mortgages to interest only, as their monthly payments will drop and therefore they will be "better off" in terms of their disposable income?

The lower monthly payments are actually going to increase the debt burden in the long term, as it will take longer and longer to pay off the capital, and all the time the interest is racking up. Yes, the interest is based on inflation, but if you look at the current situation where RPI is almost 5% and wage inflation is zero or negative, you can't argue that the loans have "no real cost" - as a proportion of your income the debt will be rising and rising if the the current economic reality persists.

Very poor show from MSE on this one .

You cannot compare this with a mortgage debt - as if your income drops below £21k you don't have to repay it and if its not repaid in 30 years the debt is wiped.

Also you take one line out of the blog. The idea of the blog is to work through the pros and cons. And in deed as described "in terms of disposible income peopel are better off" yet that only means that - in this blog and prior ones I explain the pros and cons in a nutshell.

Pros - More disposible income
Cons - Larger and longer and costlier debt (for those above the threshold)

While you may understand it - there's huge misinformation on this and going through it step by step is what i do.

Martin

poppy10_2

MSE_Martin wrote: »

While you may understand it - there's huge misinformation on this and going through it step by step is what i do.

No offence intended, I know you work hard on the site and that the intention is always to provide honest and helpful information.

jamesd

gauly wrote: »

That is an interesting point (that university is more valuable for those from poor backgrounds) and something I didn't notice.

Since that's my background it's of particular interest to me.

gauly wrote: »

The median full-time salary is just over £25k, the median for all jobs is around £21k (I think I've only seen the full-time median quoted before, so using the second figure you are right and I'm wrong, £21k is average).

Yes, full time and part time will be different, here's a partial copy and paste from where I got those figures. These are the median incomes in 2007-2008:

age 25-29: £18,500
age 30-34: £21,400
age 35-39: £22,700
age 40-44: £22,600 and from here it starts falling.

Here's Martin's table from his earlier log entry with some earnings context added:

Earnings 	Pay
£22,000 	£90	50th percentile is £18,500
£30,000  	£810	75th percentile is £29,500
£40,000 	£1,710	90th percentile is £44,900
£50,000 	£2,610	95th percentile is £61,500

Lots of other variations available depending on which part of the population is used but the general point is that students are already going to be pretty decently off before they have to pay anything. These loans aren't going to be driving anyone into poverty, as normal debt can.

PlasticMan_2

This post is a nice clear assessment of the situation but here is why I feel the cuts/loans are hugely unfair and will be very damaging.

1) The psychology of it - this relates to Martin's "educated into debt but not about it". Many people won't appreciate the difference between these loans and other debt (as Martin explains it - like a tax rather than a loan). Hence, the huge scale of these debts will have the following effects. Prior to study this will put poorer people off a uni education. After study, starting a working life with £30,000 worth of any debt is likely to make graduates think "blow it, I may as well get more loans and max out my credit cards, since I'll never pay it off anyway", not realising how this will affect them far more seriously. Their student debt will hang over their heads; a huge burden affecting their salaries for the rest of their working lives.

2) In the UK, we currently spend relatively little on Higher Education. We contribute about 1.1% of GDP, compared to 1.3% in France, 1.6% in Australia, 1.8% in Denmark, Finland and Sweden, and 2.9% in the US.* Now we're about to reduce this to almost nothing, since we are expecting all fees to be paid back. Higher education contributes to the economic and cultural well-being of a nation, and yet we're saying that, unlike every other country in the western world, we don't want to contribute?

This can only end badly, for the indebted graduates, the people who decide not to take the education/debt, and the country generally.




* Figures from OECD 2007 - link

happenstance

Will student loans put people off getting a mortage? No.

But the stupidly high price of houses will.

lizsalisbury27

that the biggest problem with this scheme has been omitted from the 'big negatives', even though you (Martin) have pointed out that the 'loan' (debt) will take longer to pay off at a 'higher' interest rate or -

Longer repayment period + Higher interest rates = Bigger total repayment amount.

So ultimately poorer paid graduates repay much more than higher paid graduates or an unfair and socially divisive policy.

Soubrette

The trouble is that there seems to be no consensus whether the student loan will or will not affect a person's ability to get a mortgage or the amount of morgage they will be able to get.

It seems as if lenders may take account of the ability to pay rather than actual loan amount - so if you are committed to paying an extra 9% of income then this may impact on your ability to get a mortgage or the amount that you can get.

Our young people are expected to save large deposits for their mortgage and save for a pension and pay for their degrees, three huge costs that were simply not so pressing when I was in my 20s.

It seems they are stuck between a rock and a hard place. If they earn too little to pay the extra 9% then it is unlikely they'll be able to save for either deposit or pension. If they earn an average age then they will have three large claims on their income before any day to day living costs (let alone being sensible and putting money aside for a rainy day).

I asked a friend in the education sysem about this and how young people can afford all these costs and her only response was that the economic situation will improve so they won't need to save so much deposit.

I feel very sorry for our potential graduates, thanks to the labour government pushing a huge increase in graduates, making employers feel as if a degree is something that's needed for jobs that A level students would do 20 years ago, lots of people who shouldn't actually need a degree feel pushed into doing one.

gauly

jamesd wrote: »

Yes, full time and part time will be different, here's a partial copy and paste from where I got those figures. These are the median incomes in 2007-2008:

age 25-29: £18,500
age 30-34: £21,400
age 35-39: £22,700
age 40-44: £22,600 and from here it starts falling.

Here's Martin's table from his earlier log entry with some earnings context added:

Earnings     Pay
£22,000     £90    50th percentile is £18,500
£30,000      £810    75th percentile is £29,500
£40,000     £1,710    90th percentile is £44,900
£50,000     £2,610    95th percentile is £61,500

Lots of other variations available depending on which part of the population is used but the general point is that students are already going to be pretty decently off before they have to pay anything. These loans aren't going to be driving anyone into poverty, as normal debt can.

Students aren't going to be decently off before they pay anything because you seem to be missing the point. The £21k threshold is for salaries in 2016 - that is in six years time!!!! By my calculations that is equivalent to a current salary of around £17.5k in today's prices if inflation is low - it could be a lot worse if inflation is high over the next six years.