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

karlie88

i am a student myself; studying medicine. due to the nature of the course (more years of studying, longer term times) our maintenance loans are a £1000 more per year than the average undergrad student.

tbh, i really haven't thought about martin's comments, up 'til now! thank you for your post.

however, the whole student loan system is pretty much shambolic at the moment (and it has been for the past few years)....i really do hope it gets better.

MSE_Martin

I don't think its profiteering to be honest (in fact I know not) its far more so they can say "the rich pay more" - and I think it is probably coming from the Lib Dems not tory side of coalition so they can hold on to the 'progessive' argument

icklepeach

I know that student loans are cheap debt - and I know that I did a good thing by getting my degree (BSc Psychology - going to do post grad primary teaching in a couple of years) but just thinking about my student loan (now somewhere in the region of £25k) makes me feel ill.

It appears to me that ever since I first joined into this system in 1998 successive governments and ministers have been able to jiggle and wiggle the system and pull whatever strings they like when it is politically expedient to do so, and there is the option to make changes retrospectively!? _pale_

There is no other financial system that would work this way - lending money and retaining control over how and when it's paid back and being able to adjust the thresholds every few years meaning many people will return to not repaying capital on loans rather maintaining an interest-only-repayment - that doesn't even seem like it should be LEGAL?!!

All this and I have a daughter who's about to start secondary with ambitions to study medicine?! I'm so proud of her ambition and feel utterly hoodwinked and abused by the system since I started uni all those years ago.

Oh, and the "rich" will never pay more - they don't take loans, the only way for that to work would be for all graduates to pay and extra % income tax for life that is ring fenced for uni funding for future students.

gainsboroughgirl

Thanks martin for uncovering this. Many parents are unable to put aside money for their kids education as they grow up. They are usually most able to help after their 25 year mortgage (if they have one) has ended. The timing is such that this often coincides with a child being at or finishing university. So, just when in middle age one can finally have some breathing space in which to find ways to help the child, it would appear the Government won't let us! I'm astonished, though sadly, not surprised. As far as I know, all loans, certainly most, allow early redemption albeit with a penalty but not an outright ban! Surely, this can't be legal? Still, will that stop them when they can just change the legislation for student loans?!
The way this would play out in the long run is obvious (and please, no offence meant to long term renters- it's just from my angle) - parents with more cash spare after ended morgages can't help their kids get debt free. Debt ridden kid can't afford mortgage. Debt ridden kid has kids of their own and can't afford a mortgage (if at all) until their middle age. They can't afford to help their kid through university. Kid has to get loan....
So, it all unravels. Our universities will become available only to the rich and the common man/woman will be once again the dumb poor. The new Feudalsim folks - (if it's not already here) -the only difference being that the Lord of the Manor is some multinational company/bank with its rich hangers-on. Oh - but we will still be a democracy, so that's ok then! We can always vote them out. Who are 'they'? Look to the compostion of our coalition Government for clues. I probably sound like a raging leftie; I'm actually not but neither do I think a right leaning system where money is ultimately the deciding factor to be right. Oh, well then, I'll go down the middle shall I? Oh dear...

gainsboroughgirl

An interesting comment from Callum 9999 - "rich parents are no indicator of wealth" and I agree to some extent but the current situation means that parents like Iphigenia feel they have to extend their mortgage to help their kids through. When they have their LEA assessment the 'shortfall' (ie unless on full grant) is plain to see but the parents don't get a letter asking for their contribution of £x amount even though, as it's based on parental income, this is what it indirectly amounts to! So, it isn't just a problem of the kid paying afterwards but how to manage during the degree. For many the answer is a job while studying -no offence but for certain types of 'modern' degree this is possible (if they can find a job) not for others though that are more academic. This is also the issue- under Blair and the efforts to open access for all to university, a plethora of Mickey Mouse degrees sprang up and this must have added to the overall financial burden for universities. Then there were the changes where the loan became the child's, the rates rose, then tuition fees etc. What a mess. You make a good argument for the Income Tax method as - if I understand what you mean by this correctly, it will be soley based on income and thus fairer as not all graduates earn anywhere near the higher earnings often presumed with a Graduate Tax. I suppose there's the caveat that there will be a threshold for each person where earning more becomes counter productive but this is inherrent in many systems, albeit for differnt reasons eg the Child Benefit argument.

jamesd

It's a regressive proposal that makes life much easier for the children of the well off if rates are set more than trivially above mortgage interest rates.

At that rate or higher there's an incentive for parents to lend their children money at mortgage interest rates.

If it's closer to personal loan rates, that makes parents lending to the children a more competitive deal than savings and low risk investments and still saves the student money. Or the parents could use a mortgage to offer the student a loan at mortgage rates.

The less well off parents, those of the children who would have greater social mobility by going to university, won't have such resources and that means that the socially mobile children will face a loan cost that the children of already established families won't have to pay.

We don't need a regressive tax on students that will discriminate against those who we should be most encouraging to go to university.

Even so, this is still progressive compared to the general population, not just other students, for the loans are to be repaid out of the higher than median income that the degree, if one is obtained, will have enabled.

JimmyTheWig

It's not progressive. At all.
The very students who will avoid all of this problem are those whose parents can afford to finance them through their education. They won't be paying _any_ interest!

A progressive solution would be: tax the rich (many of whom are graduates) and fund education.

MartinWickham

Martin, there never was such a thing as 'good debt'. In the words of Paul Lewis of BBC4's Moneybox: "Less debt, more choice"

icklepeach

MartinWickham wrote: »

Martin, there never was such a thing as 'good debt'. In the words of Paul Lewis of BBC4's Moneybox: "Less debt, more choice"

Hi Martin - I sort of agree but see both sides, the best debt is no debt - absolutely. BUT debt that doesn't grow in real terms (linked to rpi as loans are) or at all (capped at 1% above BofE base rate) is better than commercial debt as it were.

My bank gave me a 2 year 0% loan to pay off my student overdraft - good debt - taking a commercial loan at 7%ish to pay it off would be alright(ish) and better than maintaining my overdraft at the 20%apr that they would have charged had I not converted it to a loan and paid it off

The student loans now appear to be a bill to be met rather than a debt to be cleared (increasingly among us "young*" folk I'd say debt is only seen as a bill to be met - this forum has been an eye opener!) which is an alarming trend to be honest.


*In my mind I'm a recent graduate and therefore count myself as a fairly young person - unfortunately reality is that I graduated 5 years ago now and am a 30 year old with 2 kids :eek: - but don't let my mind know that :rotfl:

Angie_B

As a student who graduated 4 years ago with a Masters in Engineering, I am disgusted by this.

My parents are in no way rich and I had the full loan (plus a little extra due to means testing) for my four-year course. I borrowed £13k in total and once interest was added (which was at 4.8% by the time I graduated in 2007) I ended up with £14.5k debt. I was very lucky in that I managed to earn some sponsorship and worked every summer in the industry. There was, however, no way I could have worked during term time and kept up with the amount of lectures and work I had as an engineering student.

When I graduated and started working full time (on not a bad wage, I might add), with the student loan interest rate at the level it was I was not even paying off the interest with my monthly 9%-of-anything-over-£15k repayments. Having saved a portion of the money I earned during the summers, I made the decision to pay off a significant part of my loan early, so that I was at least paying back more than just the interest each month.

To think that the government will now penalise graduates for being sensible with their money and being able to pay off some debt early is absolutely disgusting. Graduates should be encouraged to clear their debts and not hang on to them in the hope that one day they will be written off!