'Should you be allowed to repay students loans more quickly?' poll discussion

Former_MSE_Lawrence

Poll started 08 February 2011:

Should you be allowed to repay students loans more quickly?

Under the new student loans system, students' repayments are set at 9% of everything earned above £21,000 (e.g. earn £22,000 repay £90 a year) upon leaving university, and some will pay commercial rates of interest.

The govt's currently discussing a ban / extra fees on repaying more quickly as otherwise loans would cost higher earners overpaying relatively less, and wouldn't meet the test of being 'progressive'.

Which of these is closest to your view?

You should be allowed to pay more off student loans whenever you want
Allow overpayments but with early redemption penalties
Ban overpayments so everyone has to repay at the same rate

Please vote here, or click 'post reply' to discuss below. Thanks

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TBagpuss

I feel that to discourage people from paying debt early sends totally the wrong message.
The fact that higher earners will pay off their loans more quickly than those earning lower amounts already means that some graduates will be debt-free, and will pay lower interest, than others, so there is not a level playing field in any event.

Why should a graduate who is fortunate enough to have a better paid job be able to pay off their loan more quickly, while a similar graduate with a lower paid job, but who has managed to save, or has had an inheriatance, for instance, would be made to pay penalties?

DJFearRoss

I thought students loans were there as the government (us) couldn't afford the fees anymore, sounds like they're now using it as a money making scheme instead.

emidee

Seeing as the very rich - who can afford to pay their / their kids' tuition fees upfront - get to miss out on paying any of the interest on student loans for tuition fees, then it hardly seems fair to charge extra to those who are forced to borrow due to lack of means, simply because they want to get out of debt early!

A graduate tax would have been much, much fairer.

Mr._H_2

emidee wrote: »

Seeing as the very rich - who can afford to pay their / their kids' tuition fees upfront - get to miss out on paying any of the interest on student loans for tuition fees, then it hardly seems fair to charge extra to those who are forced to borrow due to lack of means, simply because they want to get out of debt early!

A graduate tax would have been much, much fairer.

No, what would be fairer is to prevent people paying fees upfront.

Not aimed at you, but the media's misrepresentation of the new system and the general public's resulting misunderstanding I find quite depressing. Only 10% of graduates will pay back their loans before they are written off, which means that really this new system is a 9% graduate tax on earnings over £21,000*, limited to 30 years rather than the whole of the rest of your working life. The key difference from a graduate tax system is that the money paid by a given graduate effectively goes (went) to the "correct" University (i.e., the University they attended), creating a free-market system which is more likely to drive standards up through competition. With a graduate tax it is very difficult to ensure the same thing; in fact it's quite difficult to ensure that the money from a pure graduate tax even goes into higher education.

* this threshold will change with inflation.

Younger people (and their parents) desperately need to educate themselves about this system so they aren't put off from going to university. The message that University is still free up-front needs to be shouted much louder by the Media and sites like this. The second, equally important message is that the "debt" you are left with is completely unlike any other debt you will ever have: the rate at which you pay it back is fixed and low, it doesn't show up on your credit file, and if you haven't paid it off after 30 years it disappears.

I voted for option number 3: no overpayments. This ensures that the system is progressive: higher earners pay more and subsidise the system for lower earners.

Paul_Herring

Mr._H wrote: »

but the media's misrepresentation of the new system and the general public's resulting misunderstanding I find quite depressing.

And the misunderstanding by others who purport to understand it doesn't help either:

Only 10% of graduates will pay back their loans before they are written off, which means that really this new system is a 9% graduate tax which lasts for 30 years.

It's a 9% marginal tax on anything over £21,000 (at the moment.)

This new system is NOT a "9% graduate tax". Those saying this make it sound like they're going to be charged an extra 9% on any income. They won't.

For example, anyone who graduated from their 'BSc Drama in Flower Arranging' course, and didn't actually get a 'worthwhile' qualification to find a job paying more than (currently) £21K wouldn't be paying any of this '9% graduate tax.'

Their mate who scraped a £22K job would be paying £90 in that year. A whopping 0.4% 'graduate tax.'

Even someone earning (say) £44k: would be paying £2,070 - 4.7%

People need to educate themselves about this system

I couldn't agree more.

Mr._H_2

Paul_Herring wrote: »

And the misunderstanding by others who purport to understand it doesn't help either:

It's a 9% marginal tax on anything over £21,000 (at the moment.)

Yes, I did know that, thank you. Not sure why I left that out of my post; I will correct it.

Supportspice

Although the specifics of who should fund who are important, this is a topic close to my heart today - I voted to allow early repayment. In fact I paid up my student loan this morning (graduated 2001) :beer:

When I was earning under the threshold for repaying, I had interest added to my account which is only fair, when I went over the threshold I started paying it back (and still had interest added each month) and when I had some extra money to spare, I paid more.

The interest rates for savers vs borrowers are rubbish at the moment, I used Martin's advice of whether to save or pay off debts (considering the interest rates applicable to both) and paying off my student loan was more beneficial than putting the money into savings.

I appreciate not everyone will be able to do this, but I am grateful that the current system allowed me to make this logical choice and improve my financial situation.

Just my opinion!

Chyna123

I voted to be allowed to pay back student loans earlier if you choose to. I am currently a student in my final year who comes from a low income family, I am lucky enough therefore to get a Grant from the government and a busary in addition to my student loan. I apply for the loan so that I can apply for the grant and bursary but everytime they pay me my loan, I put it in an ISA and I live off my busary, my grant and I also have 2 jobs. I don't see why I should be penalised for saving my money so that I can pay it back when I finish university?
Shouldn't people be working hard to make things better for themselves and not to make things harder for others, surely this is a better sense of equality?!?!

Mr._H_2

Chyna123 wrote: »

I don't see why I should be penalised for saving my money so that I can pay it back when I finish university?
Shouldn't people be working hard to make things better for themselves and not to make things harder for others, surely this is a better sense of equality?!?!

Firstly, you are on the old system. It is unlikely that paying off your loan will be a good idea. Whilst it is true that at the moment it is difficult to achieve savings rates greater than inflation (hence interest on student loans) this will not last forever and over the long term it is highly likely you will be better off not overpaying your loan. In particular, if you never earn over £15,000, paying off any of your loan would be a total waste of money.

Under the new system, the threshold for repayment is £21,000, rising in line with earnings from 2016 onwards. As with the current system, anyone earning under this threshold is better off not repaying anything. Whilst your earnings are below £21,000, the interest rate on the loan is equal to inflation. For earnings between £21,000 and £41,000 interest is charged on a sliding scale up to a maximum of RPI+3%. I haven't been able to find info on the nature of this sliding scale and therefore assume it's linear, such that if your earnings are £31,000, you'll be paying RPI+1.5%. If you earn above £41,000, the interest rate is RPI+3%. Loans are written off after 30 years.

This mechanism has been designed so that higher earners subsidise lower earners who will not pay back all they borrowed. If early repayments are allowed, the wealthy can afford to pay off the loans early, avoiding the interest and therefore not subsidising the system. Allowing early repayment destroys the progressive nature of the system.

XRAT

Yet another government bodge job! They really don't have a clue, they're so far removed from reality.
Those who take a real degree are expected to pay for it, those who take a non degree are not! Those who go abroad will not pay either. Those who are bright enough (or have an accountant) work the system to get a grant and bursary which was intended for the poor! So all those unpaid loans get paid by the taxpayer.
Many of the privately educated claim to pay for their public education, when in fact the money comes from tax dodges (sorry, 'charitable donations') - meaning that the working classes really pay because the government is deprived of the taxes it should recieve.
The whole system needs knocking down and rebuilding.