The terms of the student loan

Baxter100

Quick question - am I correct in saying that in the future the government can do whatever they want with the terms and conditions of current student loans?

So at the moment it stands at 9% on anything over £21,000, but I note that the interest rate has gone up today to 6.1%!

So can the government simply change the above terms whenever it wishes? If it wanted could it change the terms to say 15% on anything over £18,000?

And more importantly, as it stands any unpaid student loan gets written off after 30 years. Does the government have the power to change this in the future, and actually insist that all outstanding loans be paid off?

casey

This worries me too as my daughter starts uni in September.

Baxter100

If my sums are correct then in the future a staggering amount of money will be being written off every single year.

Using the online calculators it seems the average student will probably get to the end of their 30 year period and still owe something in the region of £60,000. With the increasing interest rates however this will only get much, much worse.

Assuming that 400,000 people go to Uni each year, then:

400,000 x £60,000 = £24 billion

Being written off every year....

What am I missing?

The_Jakal

All the above is true and it seems as if these increases in interest are in fact much worse for the government as they are for students.

The fact of the matter is that the majority of students won't be impacted by rocketing interest rates. It's more of a psychological negative affect (eg looming debt) rather than a monetary one.

The worry is this... the government has played around with the terms of repayment before (freezing the £21,000 repayment threshold, which was meant to rise, until 2021) and heavy campaigning against this has failed.

They say it's unlikely, and most probably is, but will there be other changes made to the repayment terms? Eg. the 30 year wipe date or the % you're asked to pay above your £21,000 earnings?

I live in fear.

Ed-1

Baxter100 wrote: »

Quick question - am I correct in saying that in the future the government can do whatever they want with the terms and conditions of current student loans?

So at the moment it stands at 9% on anything over £21,000, but I note that the interest rate has gone up today to 6.1%!

So can the government simply change the above terms whenever it wishes? If it wanted could it change the terms to say 15% on anything over £18,000?

And more importantly, as it stands any unpaid student loan gets written off after 30 years. Does the government have the power to change this in the future, and actually insist that all outstanding loans be paid off?

The terms that students sign up to are the following:



The legislation to go with paragraph (c) can be found online, and as with all legislation, can be amended from time to time, subject to Parliamentary scrutiny.

The key repayment parameters are set out in these regulations which have been subsequently amended by (for example) these regulations.

So the answer is, yes, the loan terms set out in these regulations can be amended by subsequent regulations for both new and existing borrowers. However detrimentally amending legislation retrospectively doesn't happen that often.

'Negative' changes to student loans so far have not actually involved amending the regulations.

For example, the repayment threshold for post-2012 loans is £21,000 in the regulations and is still £21,000. No changes to the terms were needed to freeze it. But the Government are free to amend the regulations from time to time, so can increase (or indeed decrease) it as they please by amending the regulations. These particular regulations are subject to the 'negative resolution' procedure, which means Parliament do not need to approve them for them to become law, but an MP can raise an objection to them and force a vote if they want. Thus Parliament can effectively block changes they don't like, although it would take an MP to pray against the regulations.

Post-2008 starters were meant to get 'repayment holidays' but these were quietly dropped in 2010 and were never legislated for.

The interest rate on post-2012 loans is set in the regulations at between RPI and RPI+3% so will change with the March RPI every September. The fact the rate changes is not changing the terms of repayment! It's supposed to change.

Bottom line is, once something is in the regulations, it becomes much more unlikely that it will negatively change because Parliament can block it if it wants. However before it makes it into the regulations, Governments can simply change their mind and decide not to implement something. This is exactly what happened when they left the threshold for post-2012 loans at £21,000 and dropped repayment holidays.

The threshold for pre-2012 loans was £10,000 from 2000 to 2005 when the Government raised it to £15,000 for all borrowers by amending the regulations. They committed to increasing it in 2010 but changed their mind due to negative inflation which ended up leaving the threshold at £15,000 until 2012. The Coalition Government amended the regulations in 2011 to include an uprating mechanism for the £15,000 threshold to annually increase it by RPI from 2012 (initially until 2015, but they then amended the regulations again in 2014 to remove the time limit and allow it to increase indefinitely).