Student Loans in Scotland

aphty

Hello - please could someone help run me through the savings versus repayment argument for a student starting in Scotland (no tuition fees) in 2017? The student will receive just the minimum maintenance loan of £4500 for 4 years ie total loan £18000.
As this amount is not as large as the £50000 figure for England currently in the papers, I am not sure if the ‘no brainer’ argument towards savings rather than repayment is the same?
I plugged these figures into the Student Loan Calculator going with the default assumptions of 3% RPI and 2% salary growth and got the following results with an assumed starting salary of ;

£15000; debt wipes after 30 years and zero repaid (zero in today’s money)
£17000; debt wipes after 30 years and 560 repaid (240 in today’s money)
£19000; debt wipes after 30 years and 6620 repaid (3180 in today’s money)
£21000; debt wipes after 30 years and 16670 repaid (8680 in today’s money)
£23000; debt wipes after 30 years and 28560 repaid (15780 in today’s money)
£27000; debt wipes after 27 years and 40020 repaid (24760 in today’s money)
£30000; debt wipes after 22 years and 35890 repaid (24880 in today’s money)

I am now struggling to understand the implications! Am I right in thinking that the difference in starting salary makes such a difference ie an extra 12k ish repaid in total if salary starts 23k rather than 21k? And in the latter case with a start salary 23k, more than 10.5k on top of the original 1800k loan is paid back? Or with a start salary 25k, more than 22.5k on top? The main argument that ‘You can earn more saving than the loan costs’ doesn’t seem to hold in the case when with a start salary 25k, more than 22.5k is paid back on top of the original sum?

Thanks for any explanation!

[I assume the Student Loan Calculator is based on interest being charged for 2017 onwards;
While studying: RPI inflation plus 3% = approx. 6.1%
After studying, earning under £21,000: RPI inflation
After studying, earning £21,000 – £41,000 RPI plus 3% the more you earn
After studying, earning over £41,000: RPI inflation plus 3%
Also I note that the ‘Should I repay’ article states that in Scotland after 2012, loan is wiped after 35 not 30 years]

silvercar

Am I right in thinking that the difference in starting salary makes such a difference ie an extra 12k ish repaid in total if salary starts 23k rather than 21k?

No, but you are making assumptions on the increase as well as the initial pay.

So a starting salary of 21k means you are assuming pay of 21k, then 21.42, then 21.84, then 22.28..... as against starting on 23k, then 23.46, then 23.93, then 24.41. So it is a difference of 2k every year plus the cumulative effects of the 2% growth. In repayment terms it is the £180 plus the difference in growth in 9% of salary, plus not having interest charged on the £180+.

aphty

Many thanks Sivercar. I'm afraid I really struggle with the maths on this (good job the degree will be in politics!)
Maybe a direct question is better ; Assume a student starting this year in Scotland with a student loan for maintenance of £4500 for 4 years ie total loan £18000 and assuming a starting salary of say 19k on graduation. If spare cash is available, is it better to invest it say in a Lifetime ISA, and leave the loan to be paid off through salary deduction over time? And if so why?

agrinnall

You may as well just read another of the many threads asking the same question as the answer is always that it's a judgement of multiple factors that you have to make based on your own circumstances.

This might be a good starting point http://www.moneysavingexpert.com/students/student-loans-repay?_ga=2.41398754.1776220565.1499154573-1706339514.1392649330