'Does the Adam Smith Institute understand how student loans work? ' blog discussion

JimmyTheWig

setmefree2 wrote: »

Here's one from the BBC.

http://www.bbc.co.uk/news/education-14785676



The BBC Student calculator tries to do this I think by analysing projected salaries of different professions.

Good link, setmefree2.
Seems that in most cases, according to the BBC, the full amount will be repaid.

What do you think of their assumptions, Martin? Have they missed something important?

poppy10_2

JimmyTheWig wrote: »

Good link, setmefree2.
Seems that in most cases, according to the BBC, the full amount will be repaid.

What do you think of their assumptions, Martin? Have they missed something important?

Ouch. In most of the scenarios I've tried with the BBC calculator, the student will end up paying much more than they borrowed (in real terms) and get little or nothing written off.

I suspect this is because the BBC is using more realistic figures for salary growth for graduates than the MSE calculator. As I said before, if you adjust the MSE calculator to use salary growth of more than just 1% above the general population, you get huge upswings in the amount repayable.
It's misleading to advise people not to pay their loans off if you are assuming they will never get decent wage rises and therefore will have the debt automagically wiped off in 30 years.

Plus, with the way the government is raiding pensions, increasing retirement ages and contribution rates, who's to say that 30-year write off period will actually stand? Would make an easy target for any future government wanting to make savings.

JimmyTheWig

poppy10 wrote: »

Plus, with the way the government is raiding pensions, increasing retirement ages and contribution rates, who's to say that 30-year write off period will actually stand? Would make an easy target for any future government wanting to make savings.

A good point.
If I was looking to take out such a loan I would be carefully reading the small print (does such small print exist, yet?) as to if this could ever change, as well as the threshold over which you start paying (and how this is uplifted each year) and the percentage that yuo pay over that threshold.


And I agree with you about the BBC's salary predictions. Would still like to know Martin's thoughts on them?

setmefree2

This is what the 2012/2013 Student Loans Terms and Conditions guide actually says

Making extra repayments
You can pay off your loan more quickly by making extra repayments voluntarily. You can do this anytime at
www.studentloanrepayment.co.uk.
If you do choose to make voluntary repayments, you will pay your loan off more quickly. However, any voluntary repayments will not affect the amount collected through the tax system.

http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@educ/documents/digitalasset/dg_200469.pdf

That is just plain wrong and misleading, isn't it?