MSE News: Student loan interest rate could fall for hundreds of thousands

nheather

We have re-checked this info with Department for Business (whose policy this is) and the info in our article is right. From 2012, every new student will start repaying from earnings of £21,000, and that threshold will rise with inflation from 2017.

Hi Dan,

A few questions on this

(1) Any idea what inflation is being used CPI, RPI or Annual Weekly Earnings

(2) Is this published anywhere. I've not found any official written statement to this fact. I know it is now being done for the 1998 loan system but don't forget that this sat at £15k for 14 years and is only being changed now.

(3) Student Finance England told me that the lower threshold wouldn't increase at all. However, they then admitted that it might increase in the future but that would only be for new students. A student starting in 2012 would have a lower threshold of £21k and they would keep that for the entire term. Students starting in future years might have a bigger threshold. But basically the threshold you start with is the one you keep. Sounds barking but SFE were adamant.

(4) If the lower threshold increases will the upper threshold increase by a similar amount - i.e. will the entry point for RPI+3% increase?

Observation. I'm sure this is preaching to the converted, but if an private investment company behaved like this (selling loans with unclear T&Cs) then the government and FSA would haul them over the coals (PPI for example). But it seems that public investment comapnies are exempt.

Plus it would actually take consistent inflation of over 7% to get the current threshold to meet the 2012 one by the year 2016. Will be interesting!

Another observation. When we were 'sold' the massive fee increase we were told, "but you get a much better loan, you don't have the pay back until you earn £25k whereas the current one is £15k"

But they soon pegged back the £25k to £21k and omitted to tell us that the new loan has an interest rate over 4 times bigger and that the 'write off' period is longer. And then they decide to address the £15k threshold.

Cheers,

Nigel

Former_MSE_Dan

Hiya

I'll give you answer to the best of our knowledge - but we are also feeling frustrated that this isn't all set in stone by now, as term starts in 5 months!


(1) Any idea what inflation is being used CPI, RPI or Annual Weekly Earnings

We believe annual earnings

(2) Is this published anywhere. I've not found any official written statement to this fact. I know it is now being done for the 1998 loan system but don't forget that this sat at £15k for 14 years and is only being changed now.

I haven't seen it - this is from contacts at BiS and SLC press offices

(3) Student Finance England told me that the lower threshold wouldn't increase at all. However, they then admitted that it might increase in the future but that would only be for new students. A student starting in 2012 would have a lower threshold of £21k and they would keep that for the entire term. Students starting in future years might have a bigger threshold. But basically the threshold you start with is the one you keep. Sounds barking but SFE were adamant.

This is not our understanding, having spoken to BiS and SLC. The system you describe would eventually result in 10, 20, 30+ different thresholds, and the tax system would probably fall over!

(4) If the lower threshold increases will the upper threshold increase by a similar amount - i.e. will the entry point for RPI+3% increase?

Yes, this is our understanding, and is the premise we used when building our calculator

melancholly

piggeh wrote: »

It's a big shame they closed the loophole where student loans were written off if someone went bankrupt.

although that hasn't been possible since the introduction of fees in 1998 and the new funding system.... once repayment was linked to earnings, rather than a set period of paying being triggered, there wasn't the same need to write them off because the repayment terms were so different.

gadgetmind

setmefree2 wrote: »

I don't think that's what MSE would recommend. See the following:)

I don't care what MSE says, I'm quite capable of creating my own mathematical models and I know what they say.

6.6%pa - they are having a larf!

Poolie

MSE_Dan wrote: »

Yep exactly. It gets confusing now though as there are effectively 3 systems (pre-98, 98-2011 and 2012 onwards) with 3 salary thresholds, which could all change in different ways.

Plus it would actually take consistent inflation of over 7% to get the current threshold to meet the 2012 one by the year 2016. Will be interesting!

Pre-98 will rise as they have always done by the average earnings.

98-2011 will see the rise based on inflation until April 2016.

2012 and onwards will merge with the 98-2011 and be on the £21,000 from April 2016 as this is when the first set of 2012 loans will enter repayment.

Interest point about inflation having to run at 7% unless they get to April 2015 and then make the jump to £21,000 which is what they could do. They have done it previously when the threshold rose from £10,000 to £15,000 in one year. I think they are trying to reduce the gap on the jump.

Epicllama

As the mother of a potential medical student in 2013, this sort of possibility just fills me with horror. In a few years, we will be left with no well educated or professional people (other than the children of the extraordinarily wealthy) because no one else will be able to afford the courses.
Talk about short term thinking....:(

melancholly

Epicllama wrote: »

As the mother of a potential medical student in 2013, this sort of possibility just fills me with horror. In a few years, we will be left with no well educated or professional people (other than the children of the extraordinarily wealthy) because no one else will be able to afford the courses.
Talk about short term thinking....:(

although i agree that the level of debt is a massive increase and a bad idea, the loan system means that no-one needs the money upfront and there genuinely should not be a financial barrier to going to uni. i fully appreciate that the level of debt may put some potential students off, but there is no issue of being able to afford the courses since the loan system will pay maintenance and fees, where graduates only pay back amounts based on their ability to pay.

gadgetmind

Epicllama wrote: »

As the mother of a potential medical student in 2013, this sort of possibility just fills me with horror.

We're in the same boat as daughter has an offer to take medicine at Nottingham.

£9k+£5.5k pa, for five years, at over 6% interest - what a splendid way for UK Plc to thank her for her hard work!

antonia1

Poolie wrote: »

Pre-98 will rise as they have always done by the average earnings.

98-2011 will see the rise based on inflation until April 2016.

2012 and onwards will merge with the 98-2011 and be on the £21,000 from April 2016 as this is when the first set of 2012 loans will enter repayment.

Interest point about inflation having to run at 7% unless they get to April 2015 and then make the jump to £21,000 which is what they could do. They have done it previously when the threshold rose from £10,000 to £15,000 in one year. I think they are trying to reduce the gap on the jump.

This is not consistent with information I have been given. I was considering doing a PGCE and so would have both a 98 - 2011 loan AND a 2012 loan. I was unable to get clear answers on how this would be repaid and so contacted my MP. I got this response:

Repayments will be made on the older loans only (threshold rising to £15,795 from April 2012 and then by RPI annually) until the new loans for the full-time PGCE enter repayment status. The new loans will enter repayment status in April 2016, or the April after course completion if this is later.

Once the PGCE loans are also in repayment status, repayment instalments will be 9% of income above the lower repayment threshold. Repayments will be allocated to the loan balances as follows:

Repayments made from income between the lower and higher income thresholds will be allocated to the undergraduate loan balance.

Repayments made from income above the higher income threshold (£21,000) will be allocated to the PGCE loan balance.

Once either loan balance is repaid in full, the income threshold applicable to the outstanding loan balance will be used, and repayments will be allocated in full to this balance.

This seems to say that there will be different repayment thresholds for 98-2011 loans and 2012+ loans.

Poolie

antonia1 wrote: »

This is not consistent with information I have been given. I was considering doing a PGCE and so would have both a 98 - 2011 loan AND a 2012 loan. I was unable to get clear answers on how this would be repaid and so contacted my MP. I got this response:

Repayments will be made on the older loans only (threshold rising to £15,795 from April 2012 and then by RPI annually) until the new loans for the full-time PGCE enter repayment status. The new loans will enter repayment status in April 2016, or the April after course completion if this is later.

Once the PGCE loans are also in repayment status, repayment instalments will be 9% of income above the lower repayment threshold. Repayments will be allocated to the loan balances as follows:

Repayments made from income between the lower and higher income thresholds will be allocated to the undergraduate loan balance.

Repayments made from income above the higher income threshold (£21,000) will be allocated to the PGCE loan balance.

Once either loan balance is repaid in full, the income threshold applicable to the outstanding loan balance will be used, and repayments will be allocated in full to this balance.

This seems to say that there will be different repayment thresholds for 98-2011 loans and 2012+ loans.

At present the regulations mentioned previously clearly cover to April 2015. From April 2016, they would need to be the same for employers otherwise they will need to know which year you had loans for them to apply the correct threshold rate which is not going to happen as this would badly increase the administration burden.