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

cse

I think the whole thing would be easier to swallow if the government simply played by the same rules as the ones they impose on private finance firms. Even existing student loan arrangements have some bafflingly complex repayment clauses which would never make it past the Treating Customers Fairly hurdles that banks have to contend with

Did you know that the payments you make towards a student loan on a monthly basis aren't actually applied to the debt until the end of the year? And that the full outstanding balance continues to accrue interest on a monthly basis until that point? Of course you didn't, it's not like anyone with a student loan has ever seen a SECCI or CCA-compliant Credit Agreement describing all of this in detail

The new regulations will only make things worse by introducing more of these ridiculous inconsistencies

JimmyTheWig

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"

I would say that a mortgage, for many, could be considered as good debt.
Obviously I'd rather have my house and no mortgage, but that isn't an option. I'd choose house and mortgage over no house and no mortgage.

Katie-Kat-Kins

Good article.

I am very glad that I was able to pay off my student loan early. I'm not rich, and neither were my parents, I was the first person in my family to go to uni. When I graduated I deferred paying off for one year while I did my post grad course but then started paying off after that. Initially I was working part time in a bar while looking for a graduate job, then I was earning £12k a year in a legal job (law society minimum wage at the time).

I had worked throughout my degree so that I didn't build up much debt, and when I graduated I moved back in with my parents to keep my living expenses down. That, and continuing to live a fairly restrained lifestyle meant I was able to pay off my student loan fully before I hit the earnings threashold which would have forced me to do so (admittedly my loan was very small compared to current ones).

Had I waited until I was earning £21k a year this would have co-incided with the time I wanted to move out, the time when I had less disposeable income than at any time before. It would have trapped me at home for several years.

It makes perfect sense for young adults to be able to pay off early if they can afford to do so and they shouldn't be penalised for financial responsibility.

For me living cheap at home and not spending much in my first few years after uni was easy, I was used to it and living at home in your early 20s has no stigma. It would have been worse to have my disposeable income squeezed when I was older and considering moving out, getting married etc.

In my view it would be better if students started paying back their loans as soon as they start paying tax but with low repayments rather than waiting until they are earning more and taking bigger chunks.

Perhaps the way to discourage parents from paying off loans for their kids is to deduct loan repayments from salary at source and prohibit lump sum payments but make the percentage of salary adjustable.

2sides2everystory

Everything you have briefed is true Martin, but does it contribute to any movement to have the the whole thing dismantled? I think you risk being played by your friends in high places.

As you say there is no longer the faintest stigma attached to the admission of otherwise crippling personal debt. One simply doesn't have to pay, does one?

For the past fifteen years as someone with a fluctuating but average sub-£20K annual income I would have felt a failure if I had needed to borrow money at greater than the lowest market mortgage rate. Up until 15 years ago I suppose I was what was then a modestly successful graduate, until I started hitting redundancy territory. Not a good time to be starting a family but hell if we'd waited any longer there wouldn't have been one.

You might now say I am a failed graduate because I cannot even command an "average graduate starting salary".

I drive a 12 year old car which I mostly service myself, I fix my own appliances when they go wrong, and my kids as very capable young scientists like I once was are almost ready to go to a top university.

What on earth am I supposed to advise them? "Take this new government scheme and borrow £45K and hope to hell you are clever enough, ruthless enough to rise to the top of the heap and rich enough to brush it off after a few years?" AND "Just make sure you brown-nose and connive and grab what you can before someone labels you as over the hill" (Isn't that the message from our current government in this very scheme ... if you haven't paid it off by age 50 then we'll write it off (over 50 is over the hill).

The problem is that higher education in the UK has actually been dumbed down terribly like all other levels of education.

I got into a top university with a "C" in the subject I was taking and 2 "B"s and the acceptance was immediate on those grades.

Employers don't want a generally well educated workforce - they want a compliant workforce who think they are well educated but who are hungry for advancement.

I don't believe that the average graduate starting salary is £25,000. What are all the graduate retail assistants, phone shop salesmen banking cashiers etc on? Well less than £20K most of them with commission deals dangled before their noses which never quite seem to work the way they are sold. And what good do those graduates do the country? Very little if they begin to believe that the ticket to their riches lies in separating the general public from their hard earned cash that lies in their pockets using the sort of marketing employed by the supermarkets and banks and phone companies ... BOGOF/B2G1F/2 months free/0% balance transfer/cashback ... that's not marketing ... it is deliberate trickery ... and in the UK we use hoards of recent graduates in relatively lowly positions to promulgate it.

I'd say that these jobs are below serious graduates unless they are on a fast-track graduate scheme which gives them a short stint in the various sharp end departments to learn ropes. I am not sure what the graduates stuck in the more common (i.e. not on the graduate fast-track) jobs at the cut-throat sharp end would actually say about it. They'd probably say it's how it has always been and that they would have had to have been top top graduates to be considered for fast-track in their current organisations, and that they relish the challenge of bettering themselves.

Some of them no doubt will better themselves, but not so many. The majority will have to settle for slow advancement and biting their tongue and keeping their heads down or else constantly changing employers up and down the high street. So, does that mean most are already failed graduates the moment they accepting their first position in the high street or local mall like so many do and which twenty years ago would have been school leaver jobs, not graduate jobs?


I think that this is exactly the problem. The country is swamped with mediocre graduates selling us stuff - phones then phoney financial advice - seen as a well trod-route to "success" for many of them in the high street. The government on behalf of the country does not wish to pay for mediocre education of hoards more of the same. So it has abdicated the problem and put a 30 year yoke around the necks of all those unfortunate enough to be mediocre who dare "go Uni" and those few who whilst from mediocre backrounds might rise to the top and shed the burden of debt early.

But for now, I expect I shall be effectively forced to spend my life savings to date in four brief years to prevent my two kids from getting the "debt doesn't matter" habit - that's my own personal price for being a "failed graduate" I guess ... in my case though it'll need to be paid in full after age 50.

bluenose1

I would like to see a calculator that shows what students will eventually have to pay back in interest based on a say a salary of approx £25,000 a year to give an indication of what the total repayable could actually be.

Can't believe that we are talking about loans without actually giving what students will actually have to repay over the full term.

Think it is also scandalous that they can't pay off early.

wolvesfan1

I am really concerned that I am currently on the old system, but if I go on to do post graduate teacher training I will be on the new system.

Does this mean I will be paying twice? The part on the old system and the the part on new. Around £100 a month. Not good

timmasterton

Thanks for raising the profile of this issue. I thought these issues had been raised at some point but the mainstream press doesn't seem to have run with them (too detailed?). It seems unfair to be charging commercial or higher interest rates for education and outrageous to be locking them in with a possible early repayment ban.

Mike_J

Personally I see point six as exactly what the government wants.

My eldest daughter goes to uni this year so will thankfully get in before the fees increase but our youngest still has 5 years to go. What I HATE though is the situation where unis can charge higher fees if they offer more places to "lower income families". So one person can get the same degree as another but not be saddled with tens of thousands of pounds of debt. Higher income familieis may be tempted to help them pay it off, but these rules means they end up paying more.

And there was me thinking that the main "benefit" of the loans was that you dont have to pay to go to university (so why the hell should income come into it!!) only when you get a job paying the relevant amount

brummierebel

I think Martin is missing the point of the new system, in that it is more a capped graduate tax than a debt. After all, what sort of debt gets written off, regardless of amount, after 30 years.

To make it more like a graduate tax I would:

1) Disallow any early repayment and
2) Force all students, including those from rich families to take out the loans

A pure graduate tax would be unfair because there would be no limit to what one can repay. It would also be unfair to alllow people to repay early because those who earn hundreds of thousands very early on could avoid the higher interest charges, which are there, in effect, to subsidise those students who have the majority of their debt written off.

The other point is the government is not profiteering from this system; a student loans systems where you pay only the rate of inflation costs the government in subsidies. The new system means graduates who get a benefit from there degree will take on those costs instead of poorer graduates or the taxpayer.

Stevejhall

Under the new scheme of student loans , its easy to see how my daughter who will start uni in 2013 will incur a total debt of approaching 50 000 pounds ( 9K + 4.5 K ) after three years study. Based on the fact that her debts will attract around 8% interest while she is studying ( RPI +3%) . From what I can see she will need to earn over 65,000 pounds/year before the debt starts reducing. ( 8% interest on 50000 will be 4000 and 9% of 44000 is around 4000). Should she worry about these numbers because this is just going to be like a tax for 30 years rather than an amount of money that has to be paid back?