'Students – lower earners deferring to 2012 could pay LESS' blog discussion

Lokolo

tyllwyd wrote: »

Yes - I agree that a lot depends on whether you are thinking of the new student finance system as being a loan or as being a graduate tax. It seems to me that inflation works in your favour if it is a loan, but is not so relevant if it is a tax.

Going back to the original blog post, the basic difference as far as I can see between the current loans and the 2012 loans is that with the current ones you pay back more money per month and hopefully pay them off completely in a reasonable length of time (a 'loan'), and the 2012 loans you just keep paying a smaller amount each month and accept that you will be paying for 30 years (a 'tax'). If you are deciding whether to defer to next year for financial reasons, I guess it depends which you are more comfortable with.

Yep, Oldernotwiser has said this for some time now, that people should just think of it as a 30 year tax, and if look at it from an overall perspective, it is really just a tax because the chances of paying off are very small, and as you've said, you'll be paying it for 30 years.

And your other point, I see what you meant now! So with a commercial loan it would be £300 a month throughout the entire term, so inflation would actually make it very small in comparison to your income by the 30th year.

JimmyTheWig

Lokolo wrote: »

Yep, Oldernotwiser has said this for some time now, that people should just think of it as a 30 year tax, and if look at it from an overall perspective, it is really just a tax because the chances of paying off are very small, and as you've said, you'll be paying it for 30 years.

But we need to know how likely it is that someone will pay it all back or not.
We need to know this with some concrete examples (e.g. teacher, nurse) that people can relate to.

melancholly

JimmyTheWig wrote: »

But we need to know how likely it is that someone will pay it all back or not.
We need to know this with some concrete examples (e.g. teacher, nurse) that people can relate to.

well the calculations on the main website page do have amounts versus salaries. a quick google gets me the average salary for a teacher at £31K (although i don't think that includes head teachers as if you include them, the average is higher) with a starting after qualification of £21. it's worth adding in that most teachers go by the PGCE route so there will be an extra year of interest before starting to pay plus an extra year of fees/maintenance loan (although there are bursaries too - i honestly don't know how much of that will change will in 2012). essentially, with that starting salary, a teacher is unlikely to pay it off!

JimmyTheWig

melancholly wrote: »

well the calculations on the main website page do have amounts versus salaries. a quick google gets me the average salary for a teacher at £31K (although i don't think that includes head teachers as if you include them, the average is higher) with a starting after qualification of £21. it's worth adding in that most teachers go by the PGCE route so there will be an extra year of interest before starting to pay plus an extra year of fees/maintenance loan (although there are bursaries too - i honestly don't know how much of that will change will in 2012). essentially, with that starting salary, a teacher is unlikely to pay it off!

Intersting.

I did the calculations myself as I thought that with wage inflation, etc, they were bound to pay it off.

But they don't.
I'm assuming a starting salary of £21k in todays money going up to a salary of £41k in todays money in 30 years in equal jumps (giving the average of £31k in todays money).
I'm assuming wage inflation of 4%.
I'm assuming annual fees of £8k (though this is irrelevant!).
I'm assuming students take the full £5500 living allowance loan.
I'm assuming the amount borrowed goes with inflation each year.
I'm assuming RPI of 3%.

With the current scheme they'll have paid off the debt 22 years after graduating, paying a total of £37k in todays money.
With the new scheme a debt of £75k (£26k in todays money) will be wiped off in 30 years, with the student having paid £49k in todays money over that time.

So, a "typical" teacher would be £12k in todays money better off by starting in 2011 that defering to 2012.
But, despite earning an impressive sounding £162k in 2046, the level of fees they are charged to study in 2012 is irrelevant.

antonia1

Martin,

As part of your position on the student loan independent task force, could you please ensure that potential, existing and past students have all available data on the processing speed and accuracy of the student loans company? Considering the sums of money being borrowed from, and paid back too, the student loans company, I think that their appalling record on customer service cannot be ignored. Lack of information available to students does not just cover the actual costs of student loans, but also the process by which loans are assessed, actual length of time it takes to get assessed and the information given out by the call centre staff is often very inaccurate.

Thanks!

antonia1

Lokolo wrote: »

Yep, Oldernotwiser has said this for some time now, that people should just think of it as a 30 year tax, and if look at it from an overall perspective, it is really just a tax because the chances of paying off are very small, and as you've said, you'll be paying it for 30 years.

You are absolutely right, the student loan system as it is now should be considered a tax, as should the new system, but with the new system the 'tax threshold' is higher, meaning lower-than-average earners (inc those starting off in professional careers) will pay less.

Lokolo

JimmyTheWig wrote: »

So, a "typical" teacher would be £12k in todays money better off by starting in 2011 that defering to 2012.
But, despite earning an impressive sounding £162k in 2046, the level of fees they are charged to study in 2012 is irrelevant.

Exactly! Hence the view to look at it as a tax.

I agree, you should look at the total debt if you were to pay it off, but as you've seen yourself, very few people will pay it off, it's not like a commercial debt whereby if you borrow X you will be paying back X + interest.

MrsAverage

alexlyne wrote: »

So the advice is that kids going off to university can get a free ride if they're not willing to do any work, come out of it with a fully enriched experience of spending 3 years in the bar (and a 3rd if they're lucky) and going on to having a 'career' in a call centre or supermarket - so what if they are not better off, they have still sucked 30K+ from the rest of us for their 3 year party.

For those willing to work to make the most out of university (and choosing to go for this reason) are the ones who will have to pay for it - before 2012 they could reasonably expect to pay it off, but now they will have that money going out of their pay packet for practically their entire career.

Hmm, this is very fair.

Totally agree.Everyone is focussing on those who earn little or nothing, or who get made redundant or take career breaks but what about the hard working intelligent norm? What happens to them 10 or 20 years down the line when that government realises this one got it's maths wrong and not enough is being repaid?

melancholly

MrsAverage wrote: »

Totally agree.Everyone is focussing on those who earn little or nothing, or who get made redundant or take career breaks but what about the hard working intelligent norm? What happens to them 10 or 20 years down the line when that government realises this one got it's maths wrong and not enough is being repaid?

those who earn huge amounts will pay it off; those in the middle lose but making payments for the full term of the loan.... sad but true.

i'm quite sure that the current government has got its sums wrong and not enough will be repaid. but by the time this is clear, the higher education system is pretty much guaranteed to have shrunk, so the costs of it will decrease. they've also never changed the rules retrospectively, only to new starters (but i appreciate that they're happy to do that with pensions so it remains a possibility).

the problem is that the deal is done. it's not a great deal but it is what it is. hopefully tables showing repayment levels/times can help people make a decision based on the best info available now. that's all anyone can do.

tyllwyd

My worry is the threshold above which you make repayments (currently £21K). This is due to be reviewed and should increase in line with wage inflation. According to Martin's guide http://www.moneysavingexpert.com/family/student-loans-tuition-fees-changes#17 "These thresholds are likely to will rise with average earnings from 2017." - so it sounds as if even he is not too confident about it !! (BTW I pointed out the mistake in that sentence a few weeks ago but it hasn't been fixed.) Without changing the terms of the loan, it would be easy for a future government to just decide not to raise the threshold for a few years, and hey presto, they get more money back.