MSE News: Student loan repayment rules to change..
Former_MSE_Callum
Former MSE 696 Posts
A new regulation which will see the student loan repayment threshold raised to £25,000/yr and then increase annually in line with changes to average earnings will come into force next month...
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'Student loan repayment rules to change next month - what you need to know'
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'Student loan repayment rules to change next month - what you need to know'
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Debt Cleared since 01/12/15: £6,000 / £7,500
And now that the movement, of which MSE is a huge part, have achieved what they've achieved with Plan 2, with maximum of tub-thumping in the process, it seems more unlikely than ever that the mess of Plan 1 will ever be fixed.
Indeed. It's all political. The Tories can say Plan 1 has nothing to do with them as it was "Labour's scheme" (despite the recommendation in 2010 that they were presented with reading "as the threshold has not been increased since 2005, there will be a one-off increase from £15,000 to £21,000").
It would have all been very different had Labour been in power from 2010 as there wouldn't have been political leverage over the threshold. Labour would simply have raised the £15,000 threshold to £21,000 for everyone (as they did in 2005 when they raised the threshold from £10,000 to £15,000 for everyone).
The demise of the Lib Dems being exacerbated by tuition fees, combined with UKIP's demise due to the thing they existed for happening, means that this is more true than it's ever been. In 2010 and 2015 there was a degree of incentive for the big two parties to sort each other's messes out, because the more they bickered among themselves without doing anything, the greater the chance of a third party's support swelling. Now there is relatively little chance of that happening, the frequency of this behavior has gone through the roof.
From the Government's point of view it's a matter of balancing costs and political priorities, of which Plan 1 scores poorly on both measures. I'm perhaps more surprised that MSE are being so dogged on Plan 2 and doing so little about Plan 1.
Plan 1 was and remains the best deal out of all systems for people who have done well out of a degree. It is an aggressive rate of tax on those for whom university was a big mistake due to the credit crash and to the benefits of a degree being miss-sold.
Plan 2 was and has become even more of a good deal for those who would have been smarter not to have not gone to university in the first place (my differing tone here is that in 2012 it was more obvious that a degree was not the automatic choice, given the huge rise in people going to university under Plan 1 and the indifferent outcomes for those who had, combined with the credit crunch and the coalition's emphasis on the value and availability of non-degree routes). These changes mean that those who have made the greatest financial use of their degree by being in a position of paying the entire lot off, will end up paying more for it due to the high interest rate.
Plan 1 repayments cover those with a much lower total loan and therefore they are more likely to repay all the loan. There is a logic that with the high interest rates, these loans are better being paid off as early as possible, precisely because more people will end up repaying them in full.
Plan 1 loans don't have high interest rates.
There is a problem with how the plan 1 threshold applies even if you have a high debt level. For instance if you studied on more than one course. One under £3k fees and one under £9k fees.
Plan 2 only: high debt, low repayments
Plan 1 only: lowish debt, high repayments
Plan 1 and 2: high debt, high repayments
First sentence correct, second sentence completely backwards.
On Plan 1, the interest rate is real terms because there is an expectation that most people will pay it off, and therefore it is not supposed to function as a form of progressive taxation.
On Plan 2, the interest rate is high because there is an expectation that most people will not pay it off, therefore it is supposed to function as a form of progressive taxation against those whose earnings are high enough that they might actually pay it off.
For me a more logical resolution of this imbalance is that both plans should have the same starting threshold for repayment (because if you're below £25k per year you're not currently on course to do more than tickle the interest anyway), but Plan 1 should repay a higher % of earnings above that threshold.
Plan 1 only: lowish debt, high repayments short term, followed by no repayments long term as debt is cleared.
That's in the simplistic (albeit fairly common) case of a 3 year degree. It was perfectly possible to rack up £50k debt on plan 1 for e.g. a 5 year medicine degree and a PGCE etc. Those who have part of their plan 1 debt taken before 2006 and then borrowed under the £3k top-up fees or the plan 2 fees have their repayments extended to age 65 while all the time paying above the lower threshold (despite having high debt).
The system needs to be flexible enough to accommodate multiple courses of study without creating unfairness (which it isn't which has a lot to do with the decline of part-time lifelong learning).
I accept I am being simplistic in assuming that most people just did a 3 year degree. But that is the most common option. With tuition fees held at a max of £3k, most loans would be ~ £20k.
Your example is extreme, I can't see any logic in doing a PGCE to be a qualified teacher after 5 years at Med School.