MSE News: Student loan repayment rules to change..

Ed-1

silvercar wrote: »

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.

I'm not suggesting the 2 were done together, but 5 years of study under plan 1 in total was perfectly possible. e.g. a 4 year integrated masters, PGCE; or 5 year medicine.

2006-11 start fees ended up at £3.5k.

But even with the most common level of plan 1 debt (say it is around £20k), the problem with the division of repayment between plan 1 and plan 2 for those on both is clear. As it prioritises neither loan, it makes it extremely onerous and practically impossible to pay off either before write off:
plan 1 repayments are capped at £600 (9% of the difference between the thresholds) and £600 x 25 = £15,000 (at 25 years plan 1 is written off for post-2006 loans) so repayments don't cover the original borrowing let alone the interest. Meanwhile the interest continues to rack up on plan 2 which gets much less of the repayment now the threshold has substantially increased and so repayments continue on that after plan 1 gets written off.

silvercar

Ed-1 wrote: »

I'm not suggesting the 2 were done together, but 5 years of study under plan 1 in total was perfectly possible. e.g. a 4 year integrated masters, PGCE; or 5 year medicine.

2006-11 start fees ended up at £3.5k.

But even with the most common level of plan 1 debt (say it is around £20k), the problem with the division of repayment between plan 1 and plan 2 for those on both is clear. As it prioritises neither loan, it makes it extremely onerous and practically impossible to pay off either before write off:
plan 1 repayments are capped at £600 (9% of the difference between the thresholds) and £600 x 25 = £15,000 (at 25 years plan 1 is written off for post-2006 loans) so repayments don't cover the original borrowing let alone the interest. Meanwhile the interest continues to rack up on plan 2 which gets much less of the repayment now the threshold has substantially increased and so repayments continue on that after plan 1 gets written off.

According to the figures 83% of people aren't going to clear their plan 2 loans. So it doesn't matter if it isn't written off just because more of the repayment goes to plan 1, as it was continuing til write-off anyway.

The vast majority of those with Plan 1 loans, will only have plan 1 loans. They will either be paid off in full (due partly to the lower threshold) or written off after 25 years.

If you want to compare those with just plan 1 with those with plan 2 as well as plan 1, they will both be making identical payments of 9% of everything over £18,330. So that is "fair".

The only case for "unfairness" is when you compare those with plan 2 and plan 1 against those with just plan 2, as the latter have the higher threshold. But the first group are older (started uni 2011 or earlier) and had much lower tuition fees.

Ed-1

silvercar wrote: »

According to the figures 83% of people aren't going to clear their plan 2 loans. So it doesn't matter if it isn't written off just because more of the repayment goes to plan 1, as it was continuing til write-off anyway.

But those figures assume people have taken a 3 year degree. Those who've taken a first degree on plan 1 and then a short course on plan 2 have a very different complexion.

My plan 2 balance (from a PGCE) is £12k. My plan 1 balance is £28k.

With the plan 2 threshold frozen at £21k I'd have paid off my plan 2 loan before my plan 1 gets written off, so I'd have 9% deductions above the plan 1 threshold for 25 years and then they'd stop.

That's now not the case as after 25 years I'll then continue repayments on my plan 2 loan (until that gets written off 30 years after the April following that course), when otherwise I'd have had no further repayments to make.

So as my plan 2 loan didn't enter repayment until April 2016 (despite finishing that course in 2013), my plan 2 loan doesn't get written off until 2046. Which is 8 years more repayments then if I'd been able to clear it earlier. My plan 1 loan gets written off 25 years after April 2013 (i.e. 2038).

silvercar wrote: »

If you want to compare those with just plan 1 with those with plan 2 as well as plan 1, they will both be making identical payments of 9% of everything over £18,330. So that is "fair".

The only case for "unfairness" is when you compare those with plan 2 and plan 1 against those with just plan 2, as the latter have the higher threshold. But the first group are older (started uni 2011 or earlier) and had much lower tuition fees.

But plan 1 repayments are higher because it's assumed the won't last as long. If you add plan 2 to it, they'll continue until either plan 2 is paid off or written off (and that's another 30 years).

Loans for different courses are written off at different times.

silvercar

Ed-1, you must be in a very small cohort..

Those that have a plan 1 loan and then went on to have a plan 2 loan for only a short course.

Given that masters funding didn't start until September 2016, the majority of those getting masters funding would have started 3 or 4 yr courses in Sept 2012 or 2013 and would therefore have all their loans on Plan 2.

It will only have been those that did a pgce starting in Sept 2012 to 2015 that obtained that funding and were on plan 1 loans for initial degrees starting 2011 or earlier. Everyone else will have been on plan 2 for everything or plan 1 for everything. I suspect it is a small number of people.

You need to do a calculation, estimating whether it is worth repaying your short course early to avoid a large amount of interest building up and 8 further years of payments.

Ed-1

silvercar wrote: »

Ed-1, you must be in a very small cohort..

Those that have a plan 1 loan and then went on to have a plan 2 loan for only a short course.

Given that masters funding didn't start until September 2016, the majority of those getting masters funding would have started 3 or 4 yr courses in Sept 2012 or 2013 and would therefore have all their loans on Plan 2.

It will only have been those that did a pgce starting in Sept 2012 to 2015 that obtained that funding and were on plan 1 loans for initial degrees starting 2011 or earlier. Everyone else will have been on plan 2 for everything or plan 1 for everything. I suspect it is a small number of people.

You need to do a calculation, estimating whether it is worth repaying your short course early to avoid a large amount of interest building up and 8 further years of payments.

There are over 200,000 borrowers with a plan 1 and a plan 2 loan according to figures from the SLC:

https://www.whatdotheyknow.com/request/borrowers_holding_both_pre_2012#incoming-883165

PGCE funding is not classed as master's funding. Postgraduate loans are repaid under "plan 3" (6% above £21,000). PGCE loans are repaid under plan 1/2:

http://media.slc.co.uk/sfe/1819/ft/sfe_terms_and_conditions_guide_1819_o.pdf

But all this is besides the point: it is unfair to change terms retrospectively to the detriment of any borrower without mitigating it, regardless of how many it affects.

And for the record I did that calculation when I took (some of) the loan for my PGCE expecting the threshold to be frozen until at least 2021, as announced in 2015:

https://www.gov.uk/government/consultations/freezing-the-student-loan-repayment-threshold

Oasis1

Am I correct that none of these changes effect those on plan 1? I couldn't glean from the article whether thresholds for interest were changing only for plan 2.

Ed-1

Oasis1 wrote: »

Am I correct that none of these changes effect those on plan 1? I couldn't glean from the article whether thresholds for interest were changing only for plan 2.

There aren't any thresholds for interest on plan 1. The rate's 1.5% for everyone.

It only affects those on plan 1 if they also hold or take out a plan 2 loan (in which case their repayments will go on for longer as it makes it rather impossible to clear the plan 2 loan which lasts for up to 30 years, while repayments continue to be larger due to the lower threshold on plan 1).

james.parsons

Please can some explain why the retrospective change does not benefit those on plan 1? There is so much talk about how detrimental the debt is to those on plan 2. Yet over the course of our lives, those on plan 1 are actually paying more and thus will suffer more.

Ed-1

james.parsons wrote: »

Please can some explain why the retrospective change does not benefit those on plan 1? There is so much talk about how detrimental the debt is to those on plan 2. Yet over the course of our lives, those on plan 1 are actually paying more and thus will suffer more.

Because the Government refuse to change plan 1 loans as they see it as "Labour's scheme" and also because they're selling off these loans (and so would have to pay compensation to the loan purchasers to cover loss of repayments).