'Don't pay your kids tuition fees upfront' Discussion Area

Ed-1

patanne wrote: »

Post 98 loans have already been sold off to Erudio and are some of the ones with problems.

When I say post-98 I mean 'starters'. Those who started before 1998 but continued after 1998 stayed on the old mortgage-style repayment system. No income-contingent loans have ever been sold off.

patanne

I don't think you are right on that actually but must confess I don't know that much about them. But I do know that the people having trouble are the ones whose income is too low to pay back anything & therefore they need to defer. Check out the thread "ERUDIO student loans". There has been such a fuss that they have put the sale of the next tranche on hold for now, but it doesn't help those trying to deal with a debt collection agency for a debt they were told wouldn't affect their future or their credit rating.

Ed-1

patanne wrote: »

I don't think you are right on that actually but must confess I don't know that much about them. But I do know that the people having trouble are the ones whose income is too low to pay back anything & therefore they need to defer. Check out the thread "ERUDIO student loans". There has been such a fuss that they have put the sale of the next tranche on hold for now, but it doesn't help those trying to deal with a debt collection agency for a debt they were told wouldn't affect their future or their credit rating.

See: http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,3866911&_dad=portal&_schema=PORTAL

It'd help if you familiarise yourself with how mortgage-style student loan repayments work and how income-contingent student loan repayments work. In the mortgage-style system (all loans taken out for students starting before 1998) repayments are fixed over a number of monthly installments depending on how many loans were taken out. The only relation to income in these loans is the deferment threshold which is set at 85% of average earnings and updated annually.

See: http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,3867002&_dad=portal&_schema=PORTAL

With income-contingent student loans, there are two types; the first for starters before 2012 (plan 1) and the second for 2012 starters onwards (plan 2). For these there are repayment thresholds (currently £16910 for plan 1 and £21000 for plan 2) and repayments are taken through the tax system at 9% of the earnings over and above the relevant repayment threshold. All of these loans are still owned by the government and dealt with by SLC. The government had planned to try and sell off the pre-2012 loan book but recently abandoned the sale as it wouldn't bring in as much money as they had hoped (due to the number of write-offs and low interest rate cap on plan 1 loans) - see http://www.bbc.co.uk/news/uk-politics-28404598

See for plan 1: http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678490&_dad=portal&_schema=PORTAL

See for plan 2: http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678784&_dad=portal&_schema=PORTAL

ericctheking

Please bear in mind that income contingent loans have in the terms and conditions that they can be changed anytime.
So there might be a lower threshold in the future (or it doesn't raise with inflation), The interest rates could change and be set higher too.

Ed-1

ericctheking wrote: »

Please bear in mind that income contingent loans have in the terms and conditions that they can be changed anytime.
So there might be a lower threshold in the future (or it doesn't raise with inflation), The interest rates could change and be set higher too.

True but if the past has anything to go by this is unlikely. In fact a loan sale would make this even more unlikely as the terms would have to be fixed at the point of sale. It has this year been put in legislation that the repayment threshold for plan 1 loans will continue to be increased annually with RPI for the lifetime of the loans. That's not to say it can't be changed but in practice it's highly unlikely that it would.

ericctheking

Ed-1 wrote: »

True but if the past has anything to go by this is unlikely. In fact a loan sale would make this even more unlikely as the terms would have to be fixed at the point of sale. It has this year been put in legislation that the repayment threshold for plan 1 loans will continue to be increased annually with RPI for the lifetime of the loans. That's not to say it can't be changed but in practice it's highly unlikely that it would.

There is also the interpretation of the terms if they are sold off.
Check out what Erudio is doing with the mortgage loans.
Is child benefit income?

mrex

some help would be appreciated!

i'm going into second year this september, my tuition fees plus maintenance loan total £7500, i get grants totalling £3300. i am thinking is it best to pay the tuition fee up front? i am wary of the repayment terms meaning i may / will end up paying much more than i borrowed! i am from wales so get charged £3500.

i was told by my friend that if you don't take the full loans available, you lose your grant. would paying some of the costs up front reduce the amount of grants i could get?

Ziggy_Stardust

Can I ask a question on behalf of my daughter?

She has two loans one from her BSc which she started in 2010 and one from her PGCE which she started in 2013.

Here are the amount and interest rates

Plan 1 £17,607.08 1.50%
Plan 2 £12,380.10 5.50%

She has a lump sum of about £10k so is it worth paying off plan 2 or even is it possible to pay that off first? Given that interest rates in the banks at the moment are so poor it doesn't seem logical to sit on this money while her loans are gaining interest. I'm guessing she will have these loans paid off before the 25/30 year expiry dates.

Ziggy_Stardust

Anyone help?

Ed-1

Ziggy_Stardust wrote: »

Can I ask a question on behalf of my daughter?

She has two loans one from her BSc which she started in 2010 and one from her PGCE which she started in 2013.

Here are the amount and interest rates

Plan 1 £17,607.08 1.50%
Plan 2 £12,380.10 5.50%

She has a lump sum of about £10k so is it worth paying off plan 2 or even is it possible to pay that off first? Given that interest rates in the banks at the moment are so poor it doesn't seem logical to sit on this money while her loans are gaining interest. I'm guessing she will have these loans paid off before the 25/30 year expiry dates.

Ziggy_Stardust wrote: »

Anyone help?

Only she can make the decision of what to do with her money in her financial circumstances, but let's look at it from a purely factual point of view. Her plan 1 loan entered repayment on 6th April 2014 and any balance still remaining after 25 years is written off (that is, on 6th April 2039). Her plan 2 loan enters repayment on 6th April 2016 (that is the earliest date for plan 2 repayment even if you finished a short course before 2015 which she did) and any balance still remaining after 30 years is written off (that is, on 6th April 2046). The repayments where a borrower has both plan 1 and 2 loans works as follows:

The repayment threshold for plan 1 is currently £16910 (from 6th April 2015 it will be £17335 as March 2014's RPI was 2.5% and it will continue to rise annually by the March RPI inflation figure for the year before).

The repayment threshold for plan 2 is £21000.

9% of a borrower's income above the plan 1 threshold is taken for repayments. Repayments from income between the plan 1 and 2 thresholds is allocated to the plan 1 balance and repayments from income above £21000 is allocated to the plan 2 balance. So the more a borrower earns above £21000 the more repayments are allocated to the plan 2 loan. So if your daughter can clear her plan 2 balance before 6th April 2039, any plan 1 balance remaining will be written off and your daughter's repayments will be switched off at that point. Clearing the plan 2 loan balance is made harder by the higher interest rates. The more a borrower earns above £21000 the more interest gets added, up to an income of £41000 at which point the maximum RPI+3% is charged. The 5.5% (RPI+3%) figure currently applying to the plan 2 loan will reduce to 2.5% (RPI) on 6th April 2015 and from 6th April 2016 (when the plan 2 loan enters repayment) will depend on your daughter's income.

So, taking all that into account, I wouldn't make any upfront repayments unless your daughter believes she will earn so well in the future so as to repay ALL her plan 1 AND plan 2 loan balance before they're written off. But as the plan 1 loan will be written off 7 years before the plan 2 loan, and the plan 2 loan can have higher interest rates than the plan 1 loan, any upfront repayments should be allocated to the plan 2 loan (you can specify this when making a direct payment online).