Guide discussion: Should I repay my post-2012 student loan?

nicklynch

Hi
One area that seems confusing is for partial year income where you might be earning over the monthly limit but for the year will be under the 25K threshold. It seems employers still take off the amount.

SLC seems to use a monthly value for deducting via PAYE.
When asking for a refund SLC use the monthly amount rather than the year figure

Is this a grey area? Can it be explained better in the summary?
What are the exact rules?

many thanks

Ed-1

nicklynch wrote: »

Hi
One area that seems confusing is for partial year income where you might be earning over the monthly limit but for the year will be under the 25K threshold. It seems employers still take off the amount.

SLC seems to use a monthly value for deducting via PAYE.
When asking for a refund SLC use the monthly amount rather than the year figure

Is this a grey area? Can it be explained better in the summary?
What are the exact rules?

many thanks

The exact rules are the same as for National Insurance Contributions. The contribution deducted is based on what you earn over the pay period threshold which is monthly in most cases. You can get it back if you are under the annual threshold but not if you're above it.

PTBarton

My daughter has recently started working abroad and as a result has exceeded the repayment threshold. She has received a letter from SLC identifying a monthly replayment plan which seems very high, and no details have been provided as to how the monthly payements were calculated. How does she go about acquiring details so she can check they are accurate? Thanks

hiohaa

Its all yet another misleading article by Martin Lewis, playing down the real cost of all this.
He flippantly dismisses the interest rate cost, like its nothing. "aah don't worry about it! It's only the additional interest cost above RPI that's a bother, coz your purchasing power has increased too!". 
- maybe he should do some research, and go round and ask people what kind of pay rises they are getting, annually. 0.5%. 1%. 2% if you're lucky. The current interest rate on my postgraduate loan is 5.4%. This is so far above the rate banks can borrow from the BoE, or even what businesses pay on commercial loans. It is, a joke. And the longer Martin continues to play this down, and go on TV and radio going "hey guys do'nt worry Student loans aren't an issue, you only pay em back if you're earning enough" is a complete slap in the face on anyone who actually wants to get on in life. 
Yup sure, after 30 years the debt is erased, ONLY if you've been on a crap wage for 30 years! If like most students you want to progress up the ladder and earn a decent wage, and you're on £40-£50k by your late 20's like i was, then a significant portion is going on interest; infact on a £10k balance it's about £600 in interest alone a year, before you start paying it back. 
How many students will actually be sitting around on a £30k wage for most of their life? No one i know, unless you've taken out a degree which society (unfortunately) doesn't value. 
Students, and especially their parents, really need to be made aware of the interest, that it starts from the moment the funds are deposited into the account, and that it compounds. Luckily i graduated in 2009, and the interest i was paying on my undergrad loan was nothing. When i took out my postgrad loan (idiotically) i didn't bother to work out how much interest would accumulate off a £10k loan with a 6.1% interest rate back in 2016 (now 5.4%). Now i regret not waiting another year and saving up that £10k before doing the course. 

If i was 18 now there is absolutely no chance i'd go to university and carry that debt burden. Much better off now learning everything online, getting an apprenticeship or building up any kind of work experience, and getting professional qualifications in something instead, which is what employers care far more about than a degree (e.g. Chartered status). 

When rent costs are exhorbitant, and in general, cost of living is far higher and takes a greater % of income than it did for the boomer generation, having to pay not just a student loan portion, but the massive interest, makes the difference between living in a shabby flat for £500/month or something in a nicer area for £750-£800/month. It can make all the difference, even on a £50k wage. 

The irony is, when it comes to commerce, banks will throw money at shoppers. Here, have £5k on this 0% credit card, don't pay it back for 18 months, go and have fun! 
Education though? Nope, must create a debt burden hanging over a young persons neck for 10-15 years of their life. 

Ultimately though, society lets this happen, so it is all yours fault. 

To answer the article - yeh...if you're earning £35k+ then the focus should be on repaying back that Plan2 or PGL loan due to the mental interest cost, before taking on any other debt, . But dear lord, i cannot imagine how students are coping coming out with £40k+ debt now, and knowing that this will sit with them for at least 10-15 years as they work their way up an income ladder. 

Ed-1

hiohaa said:

Its all yet another misleading article by Martin Lewis, playing down the real cost of all this.
He flippantly dismisses the interest rate cost, like its nothing. "aah don't worry about it! It's only the additional interest cost above RPI that's a bother, coz your purchasing power has increased too!". 
- maybe he should do some research, and go round and ask people what kind of pay rises they are getting, annually. 0.5%. 1%. 2% if you're lucky. The current interest rate on my postgraduate loan is 5.4%. This is so far above the rate banks can borrow from the BoE, or even what businesses pay on commercial loans. It is, a joke. And the longer Martin continues to play this down, and go on TV and radio going "hey guys do'nt worry Student loans aren't an issue, you only pay em back if you're earning enough" is a complete slap in the face on anyone who actually wants to get on in life. 
Yup sure, after 30 years the debt is erased, ONLY if you've been on a crap wage for 30 years! If like most students you want to progress up the ladder and earn a decent wage, and you're on £40-£50k by your late 20's like i was, then a significant portion is going on interest; infact on a £10k balance it's about £600 in interest alone a year, before you start paying it back. 
How many students will actually be sitting around on a £30k wage for most of their life? No one i know, unless you've taken out a degree which society (unfortunately) doesn't value. 
Students, and especially their parents, really need to be made aware of the interest, that it starts from the moment the funds are deposited into the account, and that it compounds. Luckily i graduated in 2009, and the interest i was paying on my undergrad loan was nothing. When i took out my postgrad loan (idiotically) i didn't bother to work out how much interest would accumulate off a £10k loan with a 6.1% interest rate back in 2016 (now 5.4%). Now i regret not waiting another year and saving up that £10k before doing the course. 

If i was 18 now there is absolutely no chance i'd go to university and carry that debt burden. Much better off now learning everything online, getting an apprenticeship or building up any kind of work experience, and getting professional qualifications in something instead, which is what employers care far more about than a degree (e.g. Chartered status). 

When rent costs are exhorbitant, and in general, cost of living is far higher and takes a greater % of income than it did for the boomer generation, having to pay not just a student loan portion, but the massive interest, makes the difference between living in a shabby flat for £500/month or something in a nicer area for £750-£800/month. It can make all the difference, even on a £50k wage. 

The irony is, when it comes to commerce, banks will throw money at shoppers. Here, have £5k on this 0% credit card, don't pay it back for 18 months, go and have fun! 
Education though? Nope, must create a debt burden hanging over a young persons neck for 10-15 years of their life. 

Ultimately though, society lets this happen, so it is all yours fault. 

To answer the article - yeh...if you're earning £35k+ then the focus should be on repaying back that Plan2 or PGL loan due to the mental interest cost, before taking on any other debt, . But dear lord, i cannot imagine how students are coping coming out with £40k+ debt now, and knowing that this will sit with them for at least 10-15 years as they work their way up an income ladder. 

Much more relevant for the PGL where your earnings are 'taxed' at 6% on income over £21,000 but while the plan 2 threshold is so high at £26,575 (and rising) earnings are only taxed at 9% on income above that so very few end up being significantly affected by the interest on plan 2 loans. Lower the threshold however to £21,000 and it becomes a whole different ball game.

chlojo15

Hi 
I graduated 2 years ago and due to my interest of 2.6% I’ve gained 9k, so now my student loan keeps going up with £460 added on monthly... At the moment my loan is 46k and when I hit the 50k mark (next year at this point) my interest will be 5% something! I’m scared that in the next 10 years my loan will become over 100k.
Is this normal??

Rajinder_2

My son has finished his MBBS and has a total student loan (plan 2) of £90K to pay (made up of: £73,000 (total borrowed) +  £17K (interest)). I am shocked to see that the interest is £17K .
I would like to make a decision whether it would be better for me to pay it now, or whether it should be paid back in installments from my son's salary in the next 30 years, thus accruing more interest.
He will be working as a junior doctor next month and his starting salary is approximately £27,000

koru

Anyone else seen the latest analysis by the Institute for Fiscal Studies and, like me, wondering whether a lot more Plan 2 graduates would now be better off repaying their loans ASAP (if they can)?

The April 2022 report is here: https://ifs.org.uk/uploads/BN341-Student-loans-reform-is-a-leap-into-the-unknown.pdf

It is a bit confusing to read, because it doesn’t just cover the latest changes to the Plan 2 rules (ie, people who entered uni between 2012 and 2022). It also covers the new scheme that will apply to students who start in 2023. And where the report does refer to the Plan 2 graduates it focuses on the “2022 cohort”, who will be the last new students to whom Plan 2 applies, so the impact may be slightly different for students who started before 2022. But, from what I can tell, the IFS figures seem to imply that for Plan 2 it is no longer the case that only the top earners will fully repay their loans.

The reason for this is that the repayment threshold is to be frozen for three years, until 2024-25, and will then increase on a basis that is likely to be slower than under the pre-2022 rules. That latter bit does not seem to have received much publicity.

Martin’s reaction to these rule changes for Plan 2 was that the three year freeze "could add around £5,000 to the total most repay until the loan wipes". (https://www.moneysavingexpert.com/news/2022/02/student-finance-loans-changes-education/) He does not seem to be taking into account the slower increases after the freeze.

The IFS come up with figures that are much more worrying. The table on page 14 of their report suggests that graduates with mid-ranking career earnings will be hit hardest, as their extra payments over the life of the loan could amount to the equivalent of £20k in real terms (that is, adjusting for the fact that £1000 won’t be worth as much in the future, due to inflation).

Unfortunately, the IFS report does not seem to give a new figure for the percentage of graduates who are unlikely to pay off their loan before it is wiped, but I get the impression that the 83% figure quoted by Martin is no longer valid. My guess is that the new figure is around 50%. 

The reason I say this is that the IFS table shows the biggest impact for students in the 5th lifetime earnings decile (ie, those whose lifetime earnings are better than between 40% and 50% of people who started uni the same year). I’m guessing the reason the 5th decile is worst affected is that they end up in the worst case scenario, where they pay off their loan just before the loan would be written off anyway (or they only have a tiny amount written off), so they end up actually paying the theoretical maximum interest. The higher deciles aren’t as badly affected as they pay off the loan before the full 30 years expires, so they stop incurring interest at that point. If I’m right, it can be inferred that between 50% and 60% of students will pay off the loan in full. 

As the IFS say, this is all guesswork, because nobody can know (a) what the inflation rate will be over the next 30 years, (b) at what rate salaries will grow over the next 30 years, and (c) whether the government will make further changes (adverse or beneficial) in the future. Furthermore, individual graduates cannot know how their own career will progress. 

Martin does not seem to have reflected the changes in the Student Loan Calculator yet. I hope we hear more from Martin on this soon.

Baxter100

Is it 100% guaranteed that these loans will be written off in 30 years time?

Baxter100

Using this student loan calculator - https://www.studentcalc.co.uk/ -  someone borrowing £27,000 for uni, immediately starting on a £24,000 salary and retiring on a £45,000 salary, with an annual average interest rate of 6.7% would end up still owing after 30 years....

£270,000

Assuming 500,000 students a year all owed something similar, that would be total of £135 billion a year being written off. Every year.

Am I missing something? This is insane!