For interest: what happens if you have two student loans on different systems

MartinSpoon

Thought this might be of interest. I just started a thread on the Old Style board about going back to university to a 1 year teacher training course (PGDE) in Scotland. I plan on taking a new student loan out for the 1 year (£6750), but I still have about 10k unpaid on my original student loan. I called the student repayment people to ask what would happen.

The original loan is from 2002, in Scotland, so income dependant and on the old rules ("Plan 1"), 9% of anything you earn over £15,795.

Whilst I'm studying, I make no repayments, but interest continues to accrue (makes sense).

They said that my new loan doesn't get added to my old loan, but exists as a new separate loan on "Plan 2" - 9% of earnings over 21k (plus new interest rate rules). I didn't think that was changing in Scotland but apparently I was wrong.

Here's the interesting bit, the second table on the link below shows how both loans are repayed at the same time. Essentially, earnings between £15,795 and £20,999 service the original loan, earnings £21k and up service the new loan.

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

Now.. I haven't worked through the maths, but this seems a bit rotten. As MSE-ers should know, you want to service your most costly debt first, before hitting the next one. This system will result in £468 a year going to my first loan whether I like it or not. I need to work through the maths, but gut instinct tells me this will extend repayments and the total amount repayable.

Any thoughts?

brummierebel

MartinSpoon wrote: »

Now.. I haven't worked through the maths, but this seems a bit rotten. As MSE-ers should know, you want to service your most costly debt first, before hitting the next one. This system will result in £468 a year going to my first loan whether I like it or not. I need to work through the maths, but gut instinct tells me this will extend repayments and the total amount repayable.

Any thoughts?

I don't think you have a case here. There is no difference to your take home income, and the only difference to the repayment of loans is that your plan 1 loan does not get paid of as quickly as it would hve because earnings over £21k are going to your plan 2 loan, which has a higher interest rate. This benefits you. The problem would only occur if the 9% over £21k was going to pay off your plan 1 loan first.

sjmon

It's an awkward one as, I agree, we want to get the one with the highest interest paid off quicker. It seems like there's a lot of contradictory evidence flying around too making it all the more confusing!

For those of us doing teacher training though, the average salaries we can expect to earn, it is still unlikely that we pay much, if any interest before it's written off.