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

melancholly

tyllwyd wrote: »

The bigger question for me is in the future - at the moment £21K is a relatively high threshold. The promise is that as wages increase, the threshold will also be increased, but that isn't guaranteed. Keeping the threshold at the same figure over a period of time is the most obvious way for the government to get back more money from taxpayers with student loans.

well i'd like to hope that they link the interest rate and the increase in threshold, but who knows whether RPI will end up being a fair reflection of wage increases..... at least the threshold will change - the £15,000 threshold hasn't been changed since that system was introduced. i think the new plans are in that sense 'fairer' than the current system.

tyllwyd

These are the assumptions used in the table here
http://www.moneysavingexpert.com/family/student-loans-tuition-fees-changes#17

Figures based on the following assumptions:

• Interest is accrued daily and applied monthly.
• Inflation will be 3% each year (Bank of England statistics show inflation for 2000-2010 to be 2.7% and we have rounded it up).
• Graduate salary increase will be RPI + 2% (based on ONS figures 2000 - 2010). This factors in some of an individual's potential pay increases, through promotions or skills as they get older or more experienced. This differs from overall average earnings increase, which is across the whole population regardless of age.
• Tuition Loan and Maintenance Loan are £7,500 and £5,500 respectively.
• Employment will be gained from Sep 2015, but repayments start April 2016.

And the following facts:

• Debt grows by inflation plus 3% until April 2016.
• Debt increases annually by RPI plus 0.00015% for every £1 you earn above £21,000. From April 2017, this £21,000 threshold begins to increase.
• Income thresholds will grow annually from 2017 in line with earnings (which we've assumed as RPI + 1%, based on ONS figures 2000 - 2010).

I can't find it now, but I'm pretty sure the government is not committed to increase the threshold, only to review it. In that article, Martin says "These thresholds are likely to will rise with average earnings from 2017." which doesn't clarify things much.

Oldernotwiser

melancholly wrote: »

well i'd like to hope that they link the interest rate and the increase in threshold, but who knows whether RPI will end up being a fair reflection of wage increases..... at least the threshold will change - the £15,000 threshold hasn't been changed since that system was introduced. i think the new plans are in that sense 'fairer' than the current system.

Sorry, M, you're wrong. The repayment threshold was increased to £10,000 to £15,000 in 2005.

setmefree2

Oldernotwiser wrote: »

There are enormous numbers of young graduates who would give their eye teeth to earn over £21,000 - even in the south east.

and they should take the loan, whoever they are...

I can't imagine studying for 3 years and then finding I could only earn less than a secretary but I will take your word for it...

setmefree2

tyllwyd wrote: »

(and since I'm self-employed, a student loan would be a good reason for me to make sure I don't earn enough to go over that threshold but that's a whole other discussion).

I don't want that for my kids.....

setmefree2

From the MSE Article

Paying upfront may leave less cash for worse debts

Even if your child is likely to be a high earning graduate, that still doesn't necessarily make it the best use of your cash.

After studying many want to go on to buy a house or perhaps get a loan for a car

How long does a car loan last - 12 months - 24 months???? A student loan is a 20 or 30 year committment!

setmefree2

After studying many want to go on to buy a house or perhaps get a loan for a car (mature students who've done this and won't ever need to borrow skip on past).

While a mortgage is likely to be at a roughly similar rate to student loans, this money could provide a substantial deposit that could enable much cheaper mortgage borrowing and save a large amount in the long run.

Plus, when losing a job or taking a break from work, unlike a student loan, mortgage companies still come asking for the cash and could take a home if it's not being paid. So reduced mortgage borrowing is likely to be preferable for most.

Mortgages are quite flexible - they can be extended, over paid, refinanced....

.....deposits can be lent and repaid to get preferential rates....

...houses can be sold, rooms can be rented out....




...9% of your salary, is 9% of your salary, is 9% of your salary. There will be just no getting away from repaying it...



and I disagree - these SLs are much more expensive than a mortgage.

setmefree2

Compared to long term car loan or credit card borrowing, the student loan is likely to be substantially cheaper.

Really?? A 30 year committment to paying 9% (over the threshold) of your salary is cheaper than a car loan???

Personally I would rather get the bus or train!

And does anyone encourage their kids to borrow on credit cards? Should that really be a factor to consider when deciding on whether to pay fees up front? One day your child might borrow money on a credit card so don't pay their tuition fees up front. Really????

kayr_2

"Compared to long term car loan or credit card borrowing, the student loan is likely to be substantially cheaper."

With the current loan deal, it is obviously a good idea to take the loan and if parents are in a position to "pay", then put the money to cover the loan in an account which can subsequently be used instead of part of a mortgage advance - 1.5% is a pretty good rate. With the new deal, you are not going to find a savings account to match the 8%ish the students will be charged while studying. OK, economic conditions are unusual at the moment with such a low base rate and relatively high inflation and maybe things will go back to "normal" but personally I don't think they will, so the new loan could be a very bad deal if you earn a high salary and stay in work. The main advantage of the loan is the prospect of not having to pay it back, and that's what we have to think about.

I don't know about borrowing apart from mortgages - we have always saved up for cars (probably why we have very basic, older models!). Hope our kids don't go down the expensive car route, but that's their problem. Maybe the new loans will be cheaper than credit card rates etc but I would hope our children don't get into debt as a way of life and earn enough not to have to. This whole subject is really complex and made harder by the fact that "student" covers a huge range of abilities. They have very variable career prospects. I can understand why people like Martin Lewis make generalised pronouncements; they are aiming to reach a certain audience. What he says is not necessarily relevant for my family's situation but I am used to interpreting what journalists say. Take the sensible, useful bits and draw your own conclusions.

Oldernotwiser

setmefree2 wrote: »

and they should take the loan, whoever they are...

I can't imagine studying for 3 years and then finding I could only earn less than a secretary but I will take your word for it...

They could be anybody - even your own children!;)

You don't seem to realise that many responsible careers would start at this rate, even if lucrative in later years; it's called investing in your career.