'Student loans will be interest free for many 2012 starters' blog discussion

Former_MSE_Helen

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "Student loans will be interest free for many 2012 starters" Blog.

Please click 'post reply' to discuss below.

jimmcateer

Sorry Martin, mathematically fine I'm sure but economically innumerate. Who is going to put themselves through HE for three years, at real interest rates, to end up financially advantaged at less than an artisan's wage? Time for anyone with the option to bale out of this disgraceful system and the appalling incompetence of the Student Loans Company (which deserves your investigation).

tyllwyd

I have a real problem with describing the loans as 'interest free' in the headline to this blog.

If I take out a loan from a bank, and then, I don't know, die or go bankrupt before I've paid off an amount equal to the capital so that I never repay the original amount borrowed, does that make the loan interest free? I don't think anyone would describe the loan in those terms, and a bank using that language would very quickly get into trouble.

I see the point that you are trying to make, but if you are trying to educate young people to understand the financial product that they are signing up to, I think it is important not to confuse the issue further.

2sides2everystory

tyllwyd wrote: »

I have a real problem with describing the loans as 'interest free' in the headline to this blog.

So do I. Surely the old Martin Lewis has been well and truly got at ?

And why's he promoting cheapy 3 year university courses in his tables when many people are realising that it's becoming a total lottery (at horrendous expense now - or never never) going uni unless you aim for a Masters and a decent year in industry to boot ?

... a bank using that language would very quickly get into trouble.

Dead right. I feel like I woke up Saturday and somehow wandered down Alice's rabbit hole. It is surreal. What on earth is Martin doing by putting this piece out alongside that other strange piece about the feeling in his water he has about the UK economy where he on the one hand is saying goodness help us things do get dire, eh? No, actually he'd bet on the UK economy's future prospects all being a lot better than many people are reading from the figures he believes often mean the opposite to the first impression they might give. Right ... Did I imagine it or did he not say "Trust me I'm a Doctor" in both those pieces somewhere? Remind me of his speciality again ?

Maybe he was just on something when he pressed the button for those to be published - I guess none of us are immune from that.

I hope he sets us straight next week.

setmefree2

tyllwyd wrote: »

I have a real problem with describing the loans as 'interest free' in the headline to this blog.

If I take out a loan from a bank, and then, I don't know, die or go bankrupt before I've paid off an amount equal to the capital so that I never repay the original amount borrowed, does that make the loan interest free? I don't think anyone would describe the loan in those terms, and a bank using that language would very quickly get into trouble.

I see the point that you are trying to make, but if you are trying to educate young people to understand the financial product that they are signing up to, I think it is important not to confuse the issue further.

Me too. I got all excited! I thought there had been some new developments.......instead it's the same old, same old repackaged...:(

MSE_Martin

I accept some of the points above from those who understand the system.

Yet my reason for writing this blog was simple. I keep meeting parents who misunderstand the way the interest on student loans work. They say things like "yes well even if my child doesn't earn enough to pay back ever, what about the interest - thats huge."

There are still many misunderstandings out there - and how the interest relates to the repayment is a big one. Hence the reason for drafting this and why I point back to my 20 myths guide first to try and ensure people truly get it.

I hope the blog shows in graphic detail that you may pay nothing in interest, or you can pay a huge amount. Its interesting how the forum comments differ to the comments in the article - which there are discussing the chart that shows high interest at £40,0000

As to "Martin's been got at" - really did you read the blog - as I note I find the whole interest issue absolutely and fundamentally wrong.

And Jim, there's a lot of merit in what you say - hopefully again this blog joins the many others in helping them understand the true cost so they can make exactly that decision.

FATBALLZ

I also have an issue with the headline. I Accept that some people don't understand the system properly and make an issue out the interest when they shouldn't but you can't help but think some people will only read the headline and think "great, interest free loans, I can't lose!". Something along the lines of "Interest is not the major consideration with student loans" may have been better, and forced people to read into the detail, not just read the headline and draw the wrong conclusions.

2sides2everystory

An honour to have you amongst your people even before the first coffee on a Sunday, boss

I did read your blog Martin. Two of them in fact, and twice ! In fact I had crafted an even stronger response before 7pm last evening but decided to hold off and see what others thought

The stance you have taken with your blog would be novel as in harmless science fiction if it were not directed at such an impressionable target audience.

And be in no doubt - your audience are very much in the crosshairs of the government's aspiring youth population tagging, chipping and branding exercise and whether you meant to be so or not, you and MSE are an important part of the both the laser guidance system and the netting team.

Suggesting that the 2012 SLC loan scheme could mean you sign up but never pay off the interest is as crass as selling an 5% or 8% or higher capital and interest (traditional "repayment") mortgage with the same words you used ... [STRIKE]Student loans[/STRIKE] Traditional mortgages will be interest free for many that might look like:

First, everyone knows that when you start paying one of these loans your monthly payments are just going towards paying off some of the capital borrowed ... you are not really paying any interest just yet - or at all - let me explain ...

Second, if you can't afford to pay even from the soon after you settle in, don't worry, because the UK has a welfare system which will support you ... you know like Housing Benefit and stuff ... Cover for the payments you would otherwise need to make (especially the interest) is automatically included, so for all intents and purposes you won't need to pay anything until you can afford it, and anyway there's lots of help on hand. You don't even have to claim, that's all handled by deduction from your salary or benefits or if you have none then we'll sort it ... (Right ...)

The loan finishes in 30 years and again if anything has gone wrong so you haven't paid been able to pay what you borrowed then don't worry because we build in That's Life insurance which pays off what's left of the capital and the interest at the end.

What's that ? A bit like a free endowment ?

No not one of those.

What's that? Didn't the Scots have those for a bit ?

No no ... forget those ... the Scots dumped their endowments too.

No no not because they were mis-sold - we're talking something different now

In practice, therefore, Mr Customer, many people like you will never be able to pay this loan but the That's Life insurance underwritten by Dave & Nick, and George and Vince and top of the "Best of the only Gig in Town List" published by the people's friend Martin Lewis makes it a no brainer.

What's that? Don't you have to die for That's Life insurance to pay out ?

No no. You're protected. It's all been handled up front by Dave & Nick, and George and Vince. They've simply brought all the costs you might have had over the whole period of the loan for protection and shown you what it is up front, just show you so you realise what value you're getting and the extent of the protection package.

What's that?? Isn't this all much bigger than the traditional loans were - you've got no deposit but we are offering you probably 200% of all you might ever be worth even if you were to mortgage your very soul for this deal ??

No No. It just looks that way, but it isn't really something to worry your young head over it, Mr Customer. It's the way we do it this year and going forward. Everyone will be doing it. Everyone's in the same boat.

... What's that?? You're not buying a boat ?

... A pig in a poke, you say ?

There's no need to be like that - we are just making sure you know how the new loans work - it really could mean you don't ever pay any interest you know ... erm ... wait ... where are you going ? ... come ba-a-a-ck ...

Where'd they go Dave? ... Dunno Nick ...

Hmmm ...

... By the way Nick ? ... Yes, what now ?

George says those Roses need a bit more pruning ...

JimmyTheWig

Starting salary (then annually rises by RPI =3%)

Martin,

The thing that sets MSE aside from all others (apart from the size and quality of its forum members) is your scientific approach to everything. Be it loans, budgetting, dieting, driving, console singing games, you are able to deconstruct the issue to its bare bones and scientifically analyse what is really happening.

Now, if you have applied that level of thinking to the new student loans and have come out with the answer that many will be better off then that really is thinking that the public need to know.

My concern is, however, that your working here has missed a vital point in terms of graduate wages.
Yes, it's interesting to see how much a graduate would repay if they started on £20k and got increases of 3% RPI each year.
But is that a common scenario?
I would have thought it much more common for graduates to get pay rises of significantly above inflation, especially for the first few years that they are in work.

What is needed is some real examples. We need to know what people are really likely to be paying. For example, a quick google seems to suggest that someone on the Tesco graduate programme would start at £23k but could be earning £47k in four years. That's 20% pay increase a year. That's the equivalent wage of someone starting on £42k and getting 3% a year increase.
Meaning, I think, someone starting on £17k and getting 20% a year for 4 years then 3% a year after that will be paying interest.

Now Martin, I know you say "the actual numbers with a pinch of salt as the assumptions make a big difference", but where the assumptions make a big difference it is important to either (a) get them right or (b) give a range of assumptions to give a fair picture.


Jim

2sides2everystory

JimmyTheWig wrote: »

... a quick google seems to suggest that someone on the Tesco graduate programme would start at £23k but could be earning £47k in four years.

"Graduate Programme" does not mean "graduates working at Tesco". Surely that particular example is indicative of nothing at all other than to those very few who first are lucky enough to get accepted on the Tesco graduate programme and second actually fit the conditional circumstances that might mean 20% annual increases in the first four years.

This subject is not in my opinion in any way justifiable one way or another by juggling imaginary numbers. British Airways launched a recruitment drive last summer which looked like it wanted a whole bunch of clever new pilots (who of course would also be paying many tens of thousands via some weird and wonderful loan scheme for the chance), but that has kind of got slimmed down in a few short months. There is so much hot air associated with the current economy. Are we to believe the contention of Martin's recent blog on the subject of the economic outlook i.e. it'll be alright - also based on some interesting number play ?

No. Going Uni in 2012 is simply a question of whether
(a) a university education is worth shackling yourself to a quoted 9% graduate surtax linked to a deliberately loaded sub-prime interest rate on an arbitrarily large (imaginary - or is it real) capital debt with your name on it, whilst bearing in mind that there is in fact
(b) no good proof in the current climate that graduates may actually expect to earn significant amounts more than non-graduates who could have gone to university, and
(c) do you believe that the 9% surtax is actually all it will cost? I.e. do you think that this government and successive governments can protect you from some horrible increase in that surtax burden should the UK economy meltdown like so many could, and maybe even faster than you can say "I graduated Mum! - er do you mind if I come home and work out what I do now?"

Playing with imaginary numbers is politicking in this arena.

JimmyTheWig

2sides2everystory wrote: »

Surely that particular example is indicative of nothing at all other than to those very few who ...

Surely every particular example is only relevant to the people who it fits.
It was the first example I found from Google.

I'm not saying that Martin should base his figures on my one example. I'm saying that Martin has a duty to base his figures on either (a) reality or (b) several reasonable examples of reality.