Plan 2 AND Plan 5 loans (Current PGCE students) - repayment rules costing £10,000s?

Ant1966

Hi all.
Bit of a niche one this, but bear with me!
Will affect most PGCE students who have done an undergrad degree followed by a PGCE that commenced:
 last year (Sep 23)
 this year (Sep 24)
 next year (Sep 25)
These students will have had a 'Plan 2' student loan for the Undergrad course, and 'Plan 5' student loan for the PGCE (nb this doesnt apply to any other type of Masters or Post Grad, where a totally separate loan is taken out with different rules).

As readers of this forum or followers of Martins vidoes and posts will know, the Plan 5 loans are likely to cost significantly more than the Plan 2 loans over the students lifetime for average earners, due to having a lower threshold (25k frozen to Apr 27 vs almost 30k) AND lasting 40 years not 30. (although they do have a lower interest rate).

So; heres the thing. With the two loans on 2 different plans, you only pay one payment. But which 'Plans' loan balance is your payment taken off from? Its very hard to find an answer to that question on the Gov.uk website. But I have stumbled across this:
www.practitioners.slc.co.uk/media/2027/sfe-repayments-guidance-ay-24-25-v30.pdf

Its not 100% clear on what will happen to students with Plan 2 and Plan 5 loans:
"Plan 5 loans will be subject to multi-allocation rules however the earliest SRDD for Plan 5 is 6 April 2026. Therefore no statutory repayments will be allocated to Plan 5 until FY26-27 at the earliest." (page 25 onwards)
HOWEVER it does explain in details what the 'multi allocation rules' are for other multiple plan scenarios, and IF these are applied to Plan 2 & Plan 5 then what would happen is that the 9% of the amount from the (lower) Plan 5 threshold up to the (higher) plan 2 threshold would come off the plan 5 loan (it cant really come off anything else to be honest). BUT All of the amount above the higher Plan 2 threshold would come off the Plan 2 loan and none off the Plan 5.

The ramifications of this for PGCE students on average teacher earnings and career path are significant. Ive done a quick calculation (would welcome others having a go to validate) and reckon that total repayments will be over £20,000 more than they would have been had the Plan 5 loan been cleared first. (much higher earners will conversely be better off under these rules)

Has anyone else looked into this? I wonder if students will be able to ask SLC to use repayments to pay off the Plan 5 loan first? What about overpayments? For average earning students they might be worth looking at IF you can specify the plan 5 loan to be paid off. They are probably a waste of time if you can't!

Discuss (as they used to say in O levels) :-)

Ed-1

Ant1966 said:

Hi all.
Bit of a niche one this, but bear with me!
Will affect most PGCE students who have done an undergrad degree followed by a PGCE that commenced:
 last year (Sep 23)
 this year (Sep 24)
 next year (Sep 25)
These students will have had a 'Plan 2' student loan for the Undergrad course, and 'Plan 5' student loan for the PGCE (nb this doesnt apply to any other type of Masters or Post Grad, where a totally separate loan is taken out with different rules).

As readers of this forum or followers of Martins vidoes and posts will know, the Plan 5 loans are likely to cost significantly more than the Plan 2 loans over the students lifetime for average earners, due to having a lower threshold (25k frozen to Apr 27 vs almost 30k) AND lasting 40 years not 30. (although they do have a lower interest rate).

So; heres the thing. With the two loans on 2 different plans, you only pay one payment. But which 'Plans' loan balance is your payment taken off from? Its very hard to find an answer to that question on the Gov.uk website. But I have stumbled across this:
www.practitioners.slc.co.uk/media/2027/sfe-repayments-guidance-ay-24-25-v30.pdf

Its not 100% clear on what will happen to students with Plan 2 and Plan 5 loans:
"Plan 5 loans will be subject to multi-allocation rules however the earliest SRDD for Plan 5 is 6 April 2026. Therefore no statutory repayments will be allocated to Plan 5 until FY26-27 at the earliest." (page 25 onwards)
HOWEVER it does explain in details what the 'multi allocation rules' are for other multiple plan scenarios, and IF these are applied to Plan 2 & Plan 5 then what would happen is that the 9% of the amount from the (lower) Plan 5 threshold up to the (higher) plan 2 threshold would come off the plan 5 loan (it cant really come off anything else to be honest). BUT All of the amount above the higher Plan 2 threshold would come off the Plan 2 loan and none off the Plan 5.

The ramifications of this for PGCE students on average teacher earnings and career path are significant. Ive done a quick calculation (would welcome others having a go to validate) and reckon that total repayments will be over £20,000 more than they would have been had the Plan 5 loan been cleared first. (much higher earners will conversely be better off under these rules)

Has anyone else looked into this? I wonder if students will be able to ask SLC to use repayments to pay off the Plan 5 loan first? What about overpayments? For average earning students they might be worth looking at IF you can specify the plan 5 loan to be paid off. They are probably a waste of time if you can't!

Discuss (as they used to say in O levels) :-)

Currently the statutory position is as you describe: that 9% of the amount between the Plan 5 threshold up to and including the next threshold up (which could be Plan 1 or Plan 2) is allocated to the Plan 5 loan. There is no mechanism to change that. And yes it is unfair.

https://www.legislation.gov.uk/uksi/2022/1335/regulation/18

Ant1966

Thanks Ed -1 for taking the time to reply, very helpful!
I think that clause 18 in the link you have posted confirms that to be the case?

Sub Clause d is interesting though:  "(d)the Authority receives a repayment other than a direct payment."
This suggests that different rules may apply for a proactive overpayment (assuming thats what a 'direct payment' means?) but isnt clear what the different rules may be. Complex stuff, no idea how most people are meant to make any sense of it!

silvercar

Remember that for people whose earnings over the long term are not going to be be at the highest level, chances are they will continue paying until they are written off, so that which loan repayments are attached to is academic.

I thought if you make a voluntary overpayment you could choose which loan it went to repay.  Though see my post above, a teacher who never feels they will repay in full may have better things to do with their money than effectively donate to the government.

Ant1966

Hi Silvercar; thanks for the reply! In many cases Id agree with you (most/many people wont pay it all off) but I dont think thats true for the Plan 5 part for these three years of PGCE students.
Their Plan 5 loans are only covering the one year PGCE course; dont start accruing interest until after they graduate and have a lower interest rate. So a typical recent/current PGCE student may well have a Plan 2 loan of say £60k, but a Plan 5 loan of only £15k. Its quite possible that they could pay the Plan 5 loan off completely quite early on (were the rules designed to help them do it, rather than make it harder as they seem to do now) and thus leave themselves with only the Plan 2 loan. The other unusual point here is: As Martin always says, "it doesnt matter how much you owe you still pay the same each month" isnt quite true either, as once you pay the Plan 5 loan off your repayments will go down, as the Plan 2 loan has a higher threshold. Lastly dont forget the Plan 5 loan lasts for 40 years, the Plan 2 loan only 30.
So, all in all, it could make a very large difference to these students were they able to pay the Plan 5 loan off first.
This seems quite unfair, and not being discussed. We arent talking about a handful of students either, maybe 40-50,000 could have fallen into this trap.
Is anyone else on the Forum in the same boat, or have family who are?

silvercar

Ant1966 said:

Hi Silvercar; thanks for the reply! In many cases Id agree with you (most/many people wont pay it all off) but I dont think thats true for the Plan 5 part for these three years of PGCE students.
Their Plan 5 loans are only covering the one year PGCE course; dont start accruing interest until after they graduate and have a lower interest rate. So a typical recent/current PGCE student may well have a Plan 2 loan of say £60k, but a Plan 5 loan of only £15k. Its quite possible that they could pay the Plan 5 loan off completely quite early on (were the rules designed to help them do it, rather than make it harder as they seem to do now) and thus leave themselves with only the Plan 2 loan. The other unusual point here is: As Martin always says, "it doesnt matter how much you owe you still pay the same each month" isnt quite true either, as once you pay the Plan 5 loan off your repayments will go down, as the Plan 2 loan has a higher threshold. Lastly dont forget the Plan 5 loan lasts for 40 years, the Plan 2 loan only 30.
So, all in all, it could make a very large difference to these students were they able to pay the Plan 5 loan off first.
This seems quite unfair, and not being discussed. We arent talking about a handful of students either, maybe 40-50,000 could have fallen into this trap.
Is anyone else on the Forum in the same boat, or have family who are?

My thoughts are that repayment to the plan 5 loan will be 9% of the difference between the plan 5 threshold of 25,000 and the plan 2 threshold of £27,295. So each year you would only be paying £206.55 off your plan 5 loan. Even without interest that would take over 70 years to clear! So it would make no sense to try and clear that first. I accept that without the plan 5 loan, you would not start repaying until you reached the higher threshold, but that is only a saving of £206.55 a year.

All assuming rules don’t change.

(For the record, my kids both did a 1 year masters rather than pgce and that was just before post grad loans came into being).

Ant1966

Thanks for the ongoing debate Silverlake, really appreciate you taking the time to reply!

"All assuming rules don't change" Indeed! Its this risk; never mind the difficulty of predicting the next 30/40 years of life, family decisions, health, wealth and employment; that makes all this so tricky to work out what to do for the best!

Just a couple of further thoughts on your last reply.

I think the 'gap' between the Plan 2 and Plan 5 thresholds will be bigger than the £27,295 vs £25,000 that you mention. As far as I can tell the £27,295 will start increasing again with inflation from Apr 25, whereas the £25,000 will only start going up from Apr 27. So from that point onwards the 'gap' will be about £4k (assuming 2 years of 3% RPI) meaning Plan 5 loans will cost an extra £350 a year vs identical Plan 2 loans (over 30 years thats £10k extra, at 2027 prices). AND they last 10 years longer. Yay!

Even allowing for that, however, I'd still agree with you that the Plan 5 loan is unlikely to be paid off by a typcial teacher.

Thats where the (imo) punitive and unfair multi plan allocation rules come into play. A Teacher progressing normally up the pay spine would be on £43k within 6 years. (All at 24/25 prices):

So thats more like £1,700 a year being paid off. As the rules currently seem to work, that would pay off £350 of the smaller (£10-15k?) Plan 5 loan (which wouldnt be enough to pay it off) and £1,350 of the large (£60k?) Plan 2 loan (which also wouldnt be enough to pay it off, especially with the Plan 2 higher interest rates).

But what if the £1,350 was allowed to be used to pay off the smaller (£10-15k?) Plan 5 loan? Now we're in a very different scenario, it IS very possible that this (more expensive every month dont forget) loan could be paid off in a fairly short amount of time. Especially if the teacher (or even us as parents) were to make some voluntary contributions to the PLAN 5 LOAN ONLY, if thats even allowed?. (VCs are almost never a good idea unless you pay the whole loan off, but in this case might well be if you were to pay the whole plan 5 loan off?!)

I cant see any particular reason why the entire amount above the Plan 2 threshold should be allocated to the Plan 2 loan. Why not 'let the student decide' or just set the whole amount vs the Plan 5. At the moment the only people this rule benefits are HM treasury and a small number of very high earners who would pay off the Plan 2 loan. The numbers of students involved (its quite a niche scenario) arent high enough to make that much difference to the overall Student finances for HM Govt but for the students caught in this trap it seems really unfair.

I'm not even sure the Plan 2 vs Plan 5 MA rules are set in stone yet (it was certainly hard to find them online!) , so I think its worth a campaign or something? I wonder if Martin himself would want to get involved?

MalcomMacCombes

I've been trying to make sense of this too. I have a Plan 2 loan for a BSc in Psychology and Counselling and am now considering applying for am MSc in Occupational Therapy - which as one of the allied health professions qualifies for further ungraduate funding in England - similar to the PGCE I believe. Taking on a Plan 5 loan already seems like a bit of a nightmare - but the fact that such a small amount (9% between thresholds) would be being paid towards it seems to make things a whole lot worse. Bascially no chance of me ever clearing the plan 5 loan and getting back to the Plan 2 threshold. I think this needs to be publicised and campaiged on as it seems completely unfair!!!!