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MSE News: Guest comment: How banking bonuses have hit student loan repayments
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Whether £26k is enough depends of many factors.
Below figures are based on real figures
£26k is £20634 take home pay, which is approx £1720 a month
On £26k, 3.5 times income of £90k, over 25 years at 4% = £475 per month
Council tax £120ish (based on https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/335851/Council_Tax_Levels_set_by_Local_Authorities__Revised__August_2014.pdf)
Gas + Electric £125 (based on http://www.bbc.co.uk/news/business-24238708)
Commuting costs £145 (based on WY metro monthly card)
TV licence £12
Phone and Broadband inc line rental £30
They are the costs pretty much everyone has and leaves £693
Add on to that:
Running a car £160 (based on AA running costs for small car and £25 petrol a week)
Childcare £600 full time place (based on my childminders rates)
Also potentially clothing, school dinners, house maintenance, home insurance, childrens clubs, pension, etc.
And you can see that paying out £150 a month student loan (based on my loan) would not be possible, and my figures don't take in to account any holidays and socialising.
Of course some people have smaller mortgages, partners to share cost with, no kids to support, etc, but just trying to show why some can't afford to pay of student loan on £26k
So if you have children young, before earning much, run a car as well as having a travel card, want holidays, and want to save for your pension, and have no partner to help, then it's going to be a bit hard to pay back your debts?
Well yes. Maybe a good idea then to shelve the holidays for a while, put off having the children, and wait until the debt is paid down.
If you don't earn enough for the lifestyle you'd like, then it's a shame, but hardly a good reason to say that the payments should be deferred. After all, you could happily keep adding less and less necessary expenses to the list above, to show why you still would prefer not to repay, ad infinitum.
£26k is not living on the breadline, it's a very fair level to expect that debts can now be repaid. Putting a holiday ahead of it is not a reasonable request.
The article explains well the calculation behind a change that affects many people. It explains that the calculation does not make sense and is not fair. The purpose of the deferment threshold is to set a level which accurately reflects 85% of average income, not to produce an artificially low figure through the application of a flawed methodology.
The writer shows that it is the choice of BIS to use a specific 'data point' to produce a skewed figure. He examines the explanation by BIS and shows that the underlying legislation does not require this. The writer argues that if the purpose of a measurement is to estimate average income, it does not make sense to produce this estimate in a way that embraces and amplifies an anomaly rather than correcting for it:
'Since BIS then projects that trend forward into 2015, the effect is magnified: we get an estimate based on the idea that wages will have fallen for 21 months by this coming January.
But this is unreasonable: the ONS data overall shows a small but steady increase over the relevant period, roughly 1.9%/year.'
The purpose of setting the deferment level is to ensure those whose incomes are below 85% of average earnings do not make repayments. The purpose is not to to use anomalies in the ONS statistics to produce a skewed and inaccurate estimate of earnings change. The calculation and methodology is not prescribed in the Regulations. It is the choice of BIS to make the worst and most inaccurate possible estimate from the ONS figures.
The article argues that this is 'unreasonable' and unfair, and with good cause:
'I don't know how many people might be caught out by this drop in the threshold, but I do know they face the possibility of having to pay back at least one fifth of their debt over the next year, before the threshold reverts to a level that more accurately reflects average earnings.'
The writer here demonstrates that BIS is deliberately producing an inaccurate estimate. The justification by BIS is misleading as the method of calculation is not specified in the legislation. It is the choice of this government department to produce a skewed figure that directly benefits a private sector customer at the expense of its citizens. It appears to me that the role of BIS in the production of the estimate does not follow from the terms of the loans in the 1998 Regulations, but from the commercial sale agreements entered into in 1998, 1999 and 2013.
It was a deception of borrowers who took out their loans on the basis that the deferment threshold would be 85% of national income, not that a government department would deliberately underestimate this figure and ensure the greatest possible number of people make payments to the now private owner.
It is not surprising if the unusual nature of this loan scheme is not fully understood by readers without direct involvement. This was not money borrowed that should or must necessarily be paid back, as in a commercial loan. These loans were designed to 'top-up' local authority maintenance grants for students. The terms of the loans make repayment entirely conditional on income exceeding a certain level, which is not determined by what anyone may consider reasonable but by the 'estimate' of 'average monthly earnings of all full-time employees in Great Britain for the January when the level will apply based on figures published by the Office of National Statistics.'
Full repayment of all these loans was never intended and is not possible under the terms they were issued. The government estimates for the scheme anticipated that 13% of original borrowers would have their loans cancelled after continuing to earn less than the repayment threshold for 25 years, and this proportion matches the number of loans in deferment at the time of sale. This level of cancellation was anticipated by the government that issued these loans. This was the designed and intended outcome of the scheme and was accepted on the tax payers behalf by the government. If a borrower continues to receive annual deferment during this period, they are doing nothing wrong, are not at fault, and are behaving entirely within the terms of the loans. It is no more correct that they should repay the money they received than it is that recipients of maintenance grants between 1964 and 1998 should repay these.
"Prima facie that looks unreasonable and ought to be open to challenge under consumer credit legislation."
I wonder if MoneySavingExpert will be initiating such a move? Please? As I dont think the rest of us would know where to start and a class/group action might be better?
I'm £5 over the threshold, so the fact that its come down is particularly galling.
is anything being done about this? is there anything that can be done?
That would be fantastic - this is pushing us into debt
The point is they haven't moved the goalposts. The threshold has been calculated using the same method every single year since 1990.