Student Loan 2015 Discussion

setmefree2

Lokolo wrote: »

As pointed out by Martin and myself in the other thread 100000 times, there's no point looking at today's inflation. The loans are going to be paid back over 30 odd years, so you should be looking at the longterm inflation.

Yes it's high today, yes you won't make any money at the moment, but it's not going to be like this for the next 30 years. And even when there is long term high inflation, it will raise interest rates sky high like it did in the 80s.

There is every point in looking at inflation if it adds an £8k to the initial loan in the first 3 years.

Any financial advisor would/should look at the "worst case scenario" not the rosiest picture possible - Fees of £7.5K and an RPI of 3%. We can dream I suppose.

Lokolo

setmefree2 wrote: »

There is every point in looking at inflation if it adds an £8k to the initial loan in the first 3 years.

Any financial advisor would/should look at the "worst case scenario" not the rosiest picture possible - Fees of £7.5K and an RPI of 3%. We can dream I suppose.

No they would look at the realistic scenario. 3% is realistic, although I think fees of just £7.5k isn't.... But I believe Martin did they say they will be bringing out a tool to be able to change values?

If we all looked at the worst in life there would be a much higher suicide rate

tog22

setmefree2 wrote: »

Tom direct me to a savings account paying RPI + 3% and I will be your best friend forever :smileyhea

OK, it may be a stretch - but as others having pointed out, 3% inflation isn't an unreasonable longterm expectation, and there used to be savings accounts out there paying 6% (not sure what inflation was like then though). To stand a better chance you'd probably have to invest in shares (I think?)

setmefree2

Lokolo wrote: »

No they would look at the realistic scenario. 3% is realistic, although I think fees of just £7.5k isn't.... But I believe Martin did they say they will be bringing out a tool to be able to change values?

If we all looked at the worst in life there would be a much higher suicide rate

Thank you.

MSE_Martin

Andrew_McGettigan wrote: »

Dear Martin

I think you need to revise your repayment model for FAQ 17.

1. The government's 'intention' (I use this term advisedly) is to index link the thresholds to general wage inflation not graduate pay. Wage inflation is currently around 2-2.5%. I think it is best to assume it as a similar level to RPI. Otherwise, what becomes apparent from your scheme is that the government could not afford this scheme - too few people would repay the loans.

2. The interest rates and thresholds will not be set in primary legislation but treated as administrative matters. Until we see the terms of the loan agreements which individuals sign, it is not clear what protection there is for individuals against future governments changing the terms or, indeed, selling off the loans to third parties. (Loans can be sold without consultation and without consent - see 2008 Sale of Student Loans Act).

3. The 2011 Education contains a section allowing the government or third parties to set commercial rates of interest (or higher in certain cases) on student loans.

Part of your campaign for financial education needs to involve reading contracts and understanding how and when terms and conditions might change.

Yours

Andrew

In point 1. I think you've misread the assumptions.

We assume an individual graduates growth at RPI+2% of salary (this incorporates the fact that graduates tend to gain in seniority as they age - but factors in that some won't and some will take time off)

Yet we assume the thresholds go up with average earnings which we have as RPI+1% which is historically roughly right (actually slightly higher)

In point 2. While you are technically correct this is an extremely unlikely scenario.

I think it is perfectly possible the scheme will be changed for new starters in the future. Yet we have never seen previous versions of student loans changed from their outset position (ie pre 1998 students still pay that version, post 1998 pre 2004 their version etc). So I disagree that this is likely going forward, the policy has always been that they stick with what was said at the point of study start.

In point 3. Same answer as above - that legislation is to enable future schemes to change - it is not about changing conditions for those who have already contracted their course.

setmefree2

I suppose in the end, like many, a scenario involving fees of £7.5k has no relevance to me and therefore I'm sure how useful this guide is to the majority?

MSE_Martin

setmefree2 wrote: »

Martin can you show me evidence (other than the government's assertions) that the mid point fee is £7,500? As far as I'm aware the majority of Unis are charging £9k.

Even if your assertion is true most financial advisors would look at the "worst case scenario" when taking a loan out. £7.5k is way too optimistic!

Maybe you could show 2 tables, one with fees at £9k and one with fees at £7.5k?

I think this is getting rather spurious - the data isn't out yet on course fees. As noted the graph is not just tuition fees but living loans - we have taken what we assumea rough average of the two. Taking a mid point on allowable tuition fees and a higher point on living.

The graph is full of assumptions - the idea is to give people the rough pattern of repayment not to give direct answers as that's impossible.

We are building a calculator that will be ready far in advance of anyone committing to anything.

So I do feel the chart is appropriate for its purpose and full of warnings including in large above the graph saying "if your fees are bigger than £7,500" look up the table.

The point the graph is being used to illustrate is "Many won't repay in 30 years" with bigger fees "Even less will repay in 30 years" - its not a material difference, the point is made.

However as there is strong feeling on this, and it really isn't an issue for us, we can happily put in another option at £9,000 and will have it added in there in a day or two.

setmefree2

MSE_Martin wrote: »

However as there is strong feeling on this, and it really isn't an issue for us, we can happily put in another option at £9,000 and will have it added in there in a day or two.

Great Thank You.

Now I must go and do some work....

kayr_2

MSE_Martin wrote: »

I think this is getting rather spurious - the data isn't out yet on course fees.

No, but the Guardian estimated an average of about £8.6 K and my own experience is that none of the universities my son is considering have set their fees at less than £9k. So I think setmefree2 is quite sensible to suggest that a table based on £9k fees would be more helpful.

nickyhellard

Lots of questions around marriage/partnership. E.G. If a graduate gets married, works for awhile, pays off some of the loan (perhaps) ,but then gives up work to have a family, what happens to the rest of the loan. Is the working partners salary taken into account when considering if the income is sufficient to qualify for repayment. (years ago both partners income was considered when applying for a mortgage). Are they then liable to pay off that loan as well as perhaps their own loan in the case of two graduates marrying.