'Student loans – the seven deadly sins of early repayment penalties' blog discussion

Former_MSE_Helen

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 "Student loans – the seven deadly sins of early repayment penalties" Blog.

Please click 'post reply' to discuss below.

the_harrys

10 out of 10 Martin! This needs big publicity so parents and students understand the implications.
My DS wants to do Medicine in 2 years, so if he makes it to Med School he would potentially have a massive debt from 5 years of Uni and as a higher than average earner would be penalised with high interest rates and trapped for years.

He has no incentive to work hard and stay in this country, he will just suffer higher interest rates and penalties - every other EU country and probably the US would be a cheaper option with no long term, undefined tie-ins- they are not crazy enough to penalise hard work and ambition. We as parents are not poor enough for him to qualify for bursaries and are certainly not rich enough to fund 5 years of Uni at £9000 a year plus £4000 living expenses and have no time now to save enough to help him with the massive sudden fees increase.
We are proud to be British, but what incentive is there for our talented kids to stay here to be ground down in debt for the rest of their lives?

Here starts the great British brain drain....

waterhouse_melons

whats the current rules about repaying? im a student in my first year, have the maintenance and tuition loans, I probably wont be spending the maintenance because I have a job and also live at home. Can I repay early and not get penalised?

Claireannejames

There's an agenda here of course. The Tories WANT to encourage people to take out bigger debts for longer, and penalise repayment. That way, their mates the bankers make more money. That's why they've cut grants to universities and forced unis to make up the shortfall by charging students the maximum allowed fees. Everything's about the bankers in this country.

lupus

I think that this is slightly more complicated, as there is the write off of the debt after x number of years. My wife had one of the old "mortgage" style loans, and after working in the NHS all her career, will be getting it written off in just over a year when she hits 50.

So, students who run up the huge debts that now are on the cards might well not be penalised by paying them off slower than richer students, as the difference gets written off. However, they will have to accept the fact that they are in debt £££ for most of their working life.

What is also interesting will be whether the market in students really gets opened up with students looking to study in Europe. As an example Maastricht University offers courses taught in English with fees around £1500/year. You might find that this becomes an increasingly attractive prospect for students, particularly as they get the opportunity to live abroad as well. How ironic if one of the effects of the increased UK university fees is to generate graduates with a more European outlook. If I was considering university now, it would certainly be a factor.

callum9999

I'm broadly in favour of the rises, but I'm not very happy about the introduction of interest rates - they should be kept at inflation like they are now.

What I despise is this no early repayment clause - it's just profiteering. The point of student loans is so the student pay's their own way through education. It wasn't, and shouldn't, be a revenue generator.

I've heard arguments in favour of it which say it makes it fairer because it stops the rich paying off early. While it's a valid point, it shouldn't matter in my opinion. If you want to discriminate between the rich and poor (which I do agree with) it should be done right at the beginning by charging them a higher tuition fee rate, instead of hidden in clauses like this.

spikeydudeuk

There's another huge loophole in the Education Bill, which has had virtually no coverage. The current draft Bill could allow the Government to impose commercial interest rates on existing student loans, not just new ones.

Clause 70(3), which introduces commercial rate loans, states that:

This section applies in relation to a student who begins a course on or after 1
September 2012, except in such circumstances as may be prescribed.

See:
http://www.publications.parliament.uk/pa/cm201011/cmbills/137/11137.50-54.html#j032

As you'll see, clause 70(3) says that the new rules will only apply to students beginning their courses in 2012 - but effectively leaves it open to the Government to prescribe additional circumstances in which commercial interest rates will apply. This could include students who started their course before that date.

At the moment, the Bill is only in Committee Stage before the Commons, so there's scope for MPs to get this drafting anomaly removed, and ensure it's very clear that commercial interest rates will only be applied to new students, and that if the Government wants to apply them to existing students and graduates, they'll need to use primary legislation with a proper debate in Parliament. At the moment, there's a pretty clear argument that the Government will be able to apply commercial rate loans retrospectively with the stroke of a pen if the Bill passes in its current form.

I doubt MPs will think they're voting for retrospective effect when they vote for this Bill. But next time the Government needs to plug a hole in the public finances, they may well come back to this clause as an easy way to raise revenue if it's passed. We need to do everything we can to make MPs realise what they're voting for, and to stop this provision becoming law. It's an issue of basic fairness - students were told they'd only have to repay what they borrowed in real terms. Banks aren't allowed to change their rates at will (at least without giving their customers a chance to refuse the rate change). Why should the Government be in a better position - especially without proper scrutiny from Parliament?

I've written to my MP on this, but had no response. I think it's a really important point, and one that a bit of lobbying from Martin (:money:) and the team could change.

Pisces

Good grief, I had absolutely no idea. Well done Martin for raising this and I hope you're successful, otherwise if our son wants to go to uni in 15 or so years it will cripple us and him financially as we try and lessen the burden for him, and he takes on debt that would be cheaper and more flexible from a bank.

What is the government thinking?

Lokolo

I will point out, because Martin hasn't. The loans currently (and likely future ones) will be cancelled after a certain period. So even if the loan isn't eventually paid off, there will be no consequences for the person.

The student loans won't cripple people as they will not all be need to be paid back, and only paid back when affordable.

It's more of a graduate tax than a loan now.

VT82

callum9999 wrote: »

What I despise is this no early repayment clause - it's just profiteering. The point of student loans is so the student pay's their own way through education. It wasn't, and shouldn't, be a revenue generator.

Bang on. It is a ridiculous idea and completely the wrong way of going about what they are trying to achieve.

I don't even think it's about charging the rich more than the poor. Kids are neither rich nor poor when they start university - they're kids. Having rich parents is no indication of wealth - they have no god-given right to hand outs.

University should be the great leveller - a clean slate for everybody. If you want to charge 'successful' people more after uni, you need to tax them, not loan them money with unfair clauses that discourage success. I don't even think a graduate tax is the right way to go about it, income tax does the job, - and they are already fixing the student loan problem by charging higher fees in the first place, which only the 'successful' will go on to repay. If they want to repay in a lump sum, so be it - the Government can't complain as it is getting it's loan repaid in full.

It's really quite aggravating. And I won't even be affected by it, I just abhor this kind of stupidity.

Iphigenia

Every time I read about the changes to student loans the more complicated it seems and the more pitfalls become apparent. As parents born in the last couple of years of the baby boomer period we are horrified that our two sons are likely to have to borrow £27,000 each just to pay for tuition fees. Some estimates I have seen imply that they could in effect have to repay twice this much over the period of the loan.

We had to pay nothing to go to University, I got a full grant as a child of a single parent who had retired. We are lucky we have benefited from property prices and relatively stable employment. But we were able to do this because we had no debt hanging over our heads. So we will extend our mortage to raise the money to pay for our son's tuition fees. If they then deide to get into debt through riotous living that is their choice. At least they will have a choice.