Guide discussion: Plan 5 student loans

MSE_Ben_S

This is the place to discuss our new guide on 'Plan 5 student loans'.

We'd love to hear your thoughts, personal experiences, and general feedback. 

If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.'

silvercar

@MSE_Ben_S link to the guide is broken.

MSE_Ben_S

@silvercar Thanks very much for flagging. That's now been fixed.

Ed-1

MSE_Ben_S said:

This is the place to discuss our new guide on 'Plan 5 student loans'.

We'd love to hear your thoughts, personal experiences, and general feedback. 

If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.'

We'll update this guide as and when we have more information about the new Plan 5 system.

Plan 5 terms are now law:
https://www.legislation.gov.uk/uksi/2022/1335/contents/made

silvercar

I used to think that there was never a point in taking the tuition fee loan but not the maintenance loan, as the repayments would be the same in either case and people were unlikely to clear the whole loan, so there was no gain. Under the new system I can see a benefit for some in taking a smaller loan by only taking the tuition fee loan and funding maintenance by working etc

silvercar

Wales have announced that they will put September 2023 starters on plan 4, with September 2024 starters going on plan 5.

To recap on Wales student loans - all students receive the full student loan, parental income determines how much is loan and how much grant.

silvercar

Is the "23% likely to repay in full" for plan 4 loans still valid? I am thinking with frozen thresholds, high inflation there is bound to be some knock on effect on wage inflation, so borrowers are likely to have higher repayments and more may therefore repay in full, even though the interest rate is RPI+3%.

Ed-1

silvercar said:

Wales have announced that they will put September 2023 starters on plan 4, with September 2024 starters going on plan 5.

To recap on Wales student loans - all students receive the full student loan, parental income determines how much is loan and how much grant.

*PLAN 2 (4 is Scottish students)

Ed-1

silvercar said:

Is the "23% likely to repay in full" for plan 4 loans still valid? I am thinking with frozen thresholds, high inflation there is bound to be some knock on effect on wage inflation, so borrowers are likely to have higher repayments and more may therefore repay in full, even though the interest rate is RPI+3%.

There's some updated figures in the explanatory memorandum:

https://www.legislation.gov.uk/uksi/2022/1335/memorandum/contents

The combined impact of reduction in discount rate (from RPI+0.7% to RPI-1.1%), high inflation, the freeze on thresholds and change to uprating thereafter (by inflation rather than earnings) is quite extraordinary, reducing the RAB charge from 53% to 28%. This will also increase the proportion expected to repay in full from 23%.

"For loans issued to full-time borrowers in FY2022-23 the taxpayer subsidy will reduce to a forecast 29% (or £5.7bn), with more borrowers repaying more of their loans than currently. In FY2023-24 the taxpayer subsidy will reduce further, to a forecast total of £5.4bn for loans issued to full-time undergraduate higher education students. This comprises a 24% subsidy for loans issued to new students on Plan 5 terms, and 28% for loans issued on Plan 2 terms to continuing students. The proportion of the full-time higher education cohort starting in AY2023/24 who are forecast to pay off their loans in full increases to 55%."

silvercar

I suspect that what a lot of people would like to see is a forecast of the percentage who would repay the amount in full without interest, so to help make a judgement on whether it is best to take the loan or not.

I would also like to know what that 23% is now forecast to become.

magpie294

If you've already got a plan 2 loan and take out a plan 5 loan (e.g. for a PGCE course) will you have to pay back both loans at the same time once you're above the thresholds?

So if you earn £35000 would you pay back 9% of £10000 on plan 5 PLUS 9% of approx £7700 on plan 2?