Student loan will never be paid

TiredofLIfe58

I took out a student loan in the 1999/2000 academic year, of £6865. 26 years later, the outstanding loan is £5500. So, in nearly 26 years, I have paid off £1365. How can this be possible?! OK, I'm not a high tax earner but I earn a reasonable amount and I have been paying around £50 per month for about 10 years of that period.

I am in the category of loan that won't be written off until I am 65 so, if I continue to pay around the same each month, I would have paid another £4000 or so but, going on how little the last 10 years have impacted on the balance, that will make barely a dent.

I guess my point is, I borrowed less than £7000 but will have paid back over £10,000 and still not cleared the balance before it is written off. This is on, what was at the time, an interest free loan. Had it been interest free, as it should have been, I would be clear of this debt but instead, I will be paying it for the rest of my working life.

I have asked for a full statement but I imagine this will only make me more angry when I see how much I am being ripped off. Why are some loans written off after 25 years? Why should it make a difference when it was taken out? Why was interest slipped in there, ensuring that most people have no chance of ever being free of it????

saajan_12

https://forums.moneysavingexpert.com/discussion/6658937/student-loan-will-never-be-paid

This is on, what was at the time, an interest free loan. Had it been interest free, as it should have been, I would be clear of this debt but instead, I will be paying it for the rest of my working life.

Well was it actually an interest free loan? Or just no interest in real terms, the loan just grows by annual inflation? From my read its the latter, ie the £6865 in 2000 was worth £6,950 in 2001, all the way to £13,168 in 2026. They're adjusting the outstanding loan balance by inflation so it has the same value in real terms as what you borrowed. Also if the base rate is 1% lower then they further lower the increase in loan amount.

Why should it make a difference when it was taken out? Why was interest slipped in there, ensuring that most people have no chance of ever being free of it????

No policy ever stays static forever, new governments have different priorities and change the rules from then onwards, not retroactively. A couple of years before yours, student loans were set up like mortgages where they would be payable regardless of income and over a term of 60 years, rather than ~40 years for yours. Would you rather go back to that?

Exodi

TiredofLIfe58

I took out a student loan in the 1999/2000 academic year, of £6865.

So you'll be plan 1, meaning the interest rate of the loan is the lower of either RPI or the BoE base rate plus 1%?

You can see a history of past plan 1 interest rates here: https://www.gov.uk/guidance/how-interest-is-calculated-plan-1

Repayments are set at 9% above the repayment threshold, currently £26,065.

TiredofLIfe58

26 years later, the outstanding loan is £5500. So, in nearly 26 years, I have paid off £1365. How can this be possible?! OK, I'm not a high tax earner but I earn a reasonable amount and I have been paying around £50 per month for about 10 years of that period.

This really is just down to Maths. With mortgages, or other types of loans, the repayment amounts are static to ensure you pay off the balance over a set time. With student loans it depends on your earnings, so it's very possible to only be paying off the interest, or less in some cases.

Your balance is at £5.5k currently, the mean average rate over the past 10 years is ~5%. This means that you will have been accruing interest of around £300 per year. That means of the "around £50 per month" you've been paying, around half will have gone towards servicing the interest, whereas the other half will be reducing the balance. The balance is reducing, just slowly.

If we work backwards, to get to ~£600 student loan repayment per year, we can deduce that you currently earn around £32,732 (600/0.09=6666.67+26065). This is less than the ~£39k median gross annual earnings of a full time employee, whereas oftentimes people might expect a degree to enable the student to earn more than average. We also don't know what you earned and paid in the past, but inevitably it's less.

The problem could be seen as earning less than average, meaning you're only slightly over the repayment threshold, coupled with a recent period of high interest rates meaning very little principle has been paid off.

TiredofLIfe58
if I continue to pay around the same each month, I would have paid another £4000 or so but, going on how little the last 10 years have impacted on the balance, that will make barely a dent.

It's no different to making minimum payments with any debt - you'll find the debt lasts forever. Nonetheless, it's not really recommended to overpay due to the possibility the balance will be written off in the future. I would also note that half of the 10 year period you are assessing has seen unusually high interest rates in response to pandemics, wars, etc. I'm not sure if I would assume that would be normal going forward (who knows).

TiredofLIfe58

I guess my point is, I borrowed less than £7000 but will have paid back over £10,000 and still not cleared the balance before it is written off.

Again, this is a consequence of a disconnect between the level of repayment and the balance (appreciate you don't necessarily decide how much to pay!). Someone making minimum payments on a credit card could replicate the exact scenario.

TiredofLIfe58

I have asked for a full statement but I imagine this will only make me more angry when I see how much I am being ripped off. Why are some loans written off after 25 years? Why should it make a difference when it was taken out? Why was interest slipped in there, ensuring that most people have no chance of ever being free of it????

Sorry, but I don't agree you've been ripped off. You should look at the people on newer plans - they could only dream of having a student loan starting balance of under £7k. I think it's quite reasonable to expect repayment of the loan, plus interest which I presume was originally intended to counter inflation (again, look at newer plan students). The fact that loans are written off and instead of being forced to make a static repayment amount, you are charged flexibly based on your income is relatively generous compared to most other forms of credit, and previous iterations of the student loan. Ironically, you're probably on the most generous plan with a very low starting balance. I don't think it's correct to suggest 'most people have no chance of ever being free of it' - if you were earning the median average full time income for example, you'd be completely clear in around 4-5 years.

itsthelittlethings

I had student loans from the same time period, I don’t recall being told they were interest free.

badmemory

Unfortunately some schools were less than scrupulous about what their students were told as it was in their interests to have more going on to university. The last thing they wanted was students saying they weren't going to go because of the financial implications. It was obvious from day one that we could not go from under 10% going to uni up to 50% & them all having high paid jobs, especially with the new courses. Anyone wanting the really high paying jobs would have to go on to a further MA of PhD

Pescur

https://forums.moneysavingexpert.com/discussion/6658937/student-loan-will-never-be-paid

One of my kids was in the cohort that paid around £3k per year, they paid theirs off some years ago as they were a relatively high earner, the rest of my offspring paid the higher £9500 odd and that was for proper subjects that could lead to a reasonable career.

The latter are in a worse position than you, interest was added at RPI when CPI should really have been used and I think it should be capped at £50k and then no more interest added.

One of my kids has over £125k of student debt with no hope of ever paying it off.

One was going to become a teacher but for most Teacher training they add an extra year of student debt, they weighed up how awfully teachers are treated by Gov, Management and the Kids alike and so decided not to follow that path.

I believe it is really bad to give Students all this debt, especially when regardless of party, the people that made these decisions got free University education. I think it is reasonable to go back to that generation and give them all £100k of student debt (to allow for interest) that sits with them for 30 to 40 years and a charge put on their home the way Councils do if people need to go into a care home.

I believe that the organisation that runs the Management of Student debt should be sacked and closed down, the debt simply given to the banks to administer for free in return for access to the individual to sell them other financial products.

I think all Student debt should have been interest free from beginning to end.

I wonder if there will be some group formed that seeks a Judicial review on whether successive Govs of all persuasions acted legally when moving the goalposts.

It would be good to encourage employers to pay off some of the debt as a perk and give them some tax incentives to do maybe. I know that is very common in the US when they head hunt people.

LightFlare

if you borrowed £7k from a bank in 2000 and only paid back £50 a month then your balance would be pretty much the same.

Exodi

Pescur

I think all Student debt should have been interest free from beginning to end.

The problem is by not charging any interest (even just CPI/RPI to offset inflation), the government would be receiving less than they lent against their loans in real terms. This would effectively be subsidising students, especially because on top of this we know some student loans are written off.

I think in the past it might have been easier to justify government subsidy of student loans, when university attendance was rare and revered, but nowadays more children attend university than don't. Not charging interest would cost the government significant amounts of money in real terms.

Unfortunately, you could suspect those without children that went to uni may not share your view.

Personally, I think it's sensible to better promote alternatives to university.

I have much sympathy for those attending and then struggling to find a relevant job at the end. My youngest sister has just discovered this the hard way - having studied paramedic science with the promise of a job at the end, only to have the job evaporate as she reached the finish line. Now saddled with 5 figures of university debt and working in Asda.

My wife studied Fashion, and she works for Border Force. I think it's dangerous to imply that university is the natural progression from school, where many may see no benefit from it (but they'll feel the consequences for decades to come).

horsewithnoname

They need to go back to providing free education. I got a degree and had a grant, no paying for it for the rest of my life.
Real sympathy for today’s students who get in a shedload of debt for something that should be paid for by general taxation.

LightFlare

https://forums.moneysavingexpert.com/discussion/comment/81922187#Comment_81922187

the issue I would have with subsidised/fully funded degrees by the tax payer is that we would be paying for people to spend 3 years doing something that is of zero value to the taxpayer (in some cases)

I would be 100% happy to have certain degrees (such as health related ones) fully funded with the condition that the student agrees to a minimum period of service afterwards

Don’t forget that when health related degrees were fully funded with no conditions attached, that people would happily do their training and qualifications and then head off to work on other countries - which imo is terrible investment return for the tax payer

The idea behind having to pay for degrees I presume was to encourage youngsters to make better choices for their future.

Yes, they may only be 18 and naive, but they are adults and allowed to drink,vote and fight for the country at that age (and they want to lower the voting age to 16 as well)

itsthelittlethings

https://forums.moneysavingexpert.com/discussion/comment/81922443#Comment_81922443

In what case is education of zero value to the taxpayer? Education is regulated in the UK and degree courses have to adhere to quality standards, as far as I know.