About to get £55k loan and getting the heebie-jeebies...

SteveyLomas

I am about to go to university for a post-graduate degree and doing that will cost about £80k. I have been saving like crazy this year and have managed to put together £25k from scratch, however I must borrow the remainder.
The university will lend the money at 8.75% (with a 4% arrangement fee) to be repaid over 25 years maximum (no early repayment penalties). This I fully comprehend is a massive financial commitment but I am looking from some advice from people with these kinds of levels of debt feel about how manageable it is. It seems a large amount to me, but is it on the verge of being at a dangerous level. Can you carry on living as normal, or does it really eat away at you? Will it be possible to refinance this at all upon completion at better rates?
Any words of wisdom on the nuts of bolts of this kind of debt are gratefully received!

Stevey

Snaggles

Goodness, that is a huge amount to take on - I think in your circumstances I would look at what the monthly repayments are going to be (check that the interest rate is fixed for the life of the loan), and balance that out against what you will gain from doing the degree in terms of increased earning potential etc. What sort of income level will you realistically be able to achieve? And also look at the likelyhood of getting a job in the field you will be qualified in (will the qualification pretty much guarantee you a job for life, for example, or is it a cut-throat industry).

Will you have to pay anything back while you are studying, or will the 25 years start from when you finish the degree. In terms of whether or not you could carry on living as normal, I suppose the majority of people will be paying out the same kind of money on a mortgage, so depending on your income level, it may well be perfectly manageable - although it IS going to be a significant outgoing, and would affect affordability if you apply for a mortgage (for example) in the future.

What does the £80k cover? Is there any scope to reduce the cost?

tyllwyd

It is a huge amount to borrow - if you were borrowing that much to buy a house (well, except that obviously it wouldn't buy you much more than a shed nowadays), at least at the end of the 25 years you would own the house, and hopefully the value of the house would have increased in the meantime. If you borrow that much to pay for a degree, at the end of the 25 years you won't have anything tangible to show for it, so you are gambling that it will be worth it in terms of your career.

SteveyLomas

Thanks for responding Snaggles. You have some good questions and I have few answers. The interest rate is unfortunately not fixed and is determined annually based on US interest rates. I haven't had the documentation through yet. However a quick search now through some papers says the repayment is 10 years, which I guess makes it more encumbering. So that is about £500 per month capital and £400 per month interest.

The mean salary cited by the university upon graduation is £50,000. There is no guarantee of a job and it is not industry specific (its an MBA).

The 10 years start when you finish the degree. I don't anticipate being able to pay anything back until I graduate, other than during the compulsory summer internship (its a 2 year degree) which is the only time I will be working. I don't think it is possible, nor is it desirable to work during term time as if I am paying all this money, I won't to wring every bit of knowledge out of the degree I can!

The £80k covers supposedly everything, including £1500 a year for 'entertainment'. I'm not really too excited about cutting this as well, its £30 a week and I think I would be missing a vital essence of the university experience by cutting this down. Does that sound a bit immature?

Yes I like your mortgage example you used, investing in my brain instead of bricks - knowing my brain though, if I was an investor, I would be looking wistfully at the bricks! Alas a bigger brain doesn't give you shelter either - I will be having to shell out for rent etc when I finish as well.

I'm interested in this mortgage consideration - I'm nearly 28 and want to buy a house one day (who doesn't?) and want that day to be before I'm 40. Will having a large loan be a serious impediment?

Hope that clears things Snaggles - what I need now is for you to tell me exactly the correct thing to do so I don't have to worry about it anymore!

Seriously I would tremendously appreciate any experience of debts like this that are in the MSE community.
Stevey

Snaggles

SteveyLomas wrote: »

I'm interested in this mortgage consideration - I'm nearly 28 and want to buy a house one day (who doesn't?) and want that day to be before I'm 40. Will having a large loan be a serious impediment?

Most high street mortgage providers have now abandoned the traditional 'income multiples' (ie 3.5 x salary etc) and now assess purely on affordability. So the loan repayment will be included in your outgoings when they calculate that affordability.

As a very general rule (bearing in mind I have only ever worked for one bank as a mortgage underwriter), for a high street lenders, the 'commitment level' they will look at is somewhere in the region of 60%. What that means is that they would want your essential outgoings (mortgage repayment, council tax and insurances, childcare/school fees/child maintenance, creditor payments etc) to be around 60% or less of your monthly income after tax and deductions.

Hope that clears things Snaggles - what I need now is for you to tell me exactly the correct thing to do so I don't have to worry about it anymore!

:rotfl: Tell you what, I will swap you that information for next Saturday's lottery numbers?

SteveyLomas

No problem. 1 2 3 4 5 6. The papers are going to have field day with that story I tell ya.

Now what to do?

poppyg_2

SteveyLomas wrote: »

I'm interested in this mortgage consideration - I'm nearly 28 and want to buy a house one day (who doesn't?) and want that day to be before I'm 40. Will having a large loan be a serious impediment?

I guess that depends on how much you're earning. The amount of money you'd be paying back over a 10 year period could be massive especially with the APR being flexible. is there no other way of getting finance for this Degree? No grants or anything you can get with not working?

I don't want to sound pessimistic at all and I admire you for wanting to do this MBA but what happens if you don't end up with a £50k a year job, obviously it's not guaranteed and worst case scenario is you could end up in a real mess having to pay this huge amount back.

Do you have to do an MBA at this particular time in your life? I just wonder if you'd better getting a full time job and maybe trying to do an MBA in the future, perhaps whilst working, I know a couple of people who have done this

SteveyLomas

Thanks PoppyG - sober pessimism is exactly what is required so I can be really sure.

APR has me worried. I think the rate is based on the US base rate plus a certain margin and is held for the year. Thus if its is base rate +6% and interest rates start going up, which will happen if inflation really kicks in, means that 9% could be 15%, which could be nearly £1200 a month, post-tax, to service the loan. Ouch.

Grants are a route which has reached a dead-end. The only other possible source is the Bank Of Mum and Dad, which whilst is a trusty institution with friendly staff and free meals thrown in with every visit, does not have an enormous capital base. They're nearing a retirement which they are slightly worried about and whilst they have about £2k outstanding on their house, I'm really unwilling to get them to remortgage and lend me the money. I could ask them, but I'm worried they might say yes - I mean imagining sweating away for 30 years to finally almost pay off a mortgage, only for your son and heir to demand you re-mortgage it again. It would be horrific feeling going back into the depths.

Yes its not guaranteed. I'm backing myself and I'm hoping to score a job with more money than that. In fact that is exactly what I am earning at the moment, so an uplift post-MBA would be good. I've thought about a part-time MBA, but the reason I'm doing this qualification isn't so much for the letters, but for the knowledge and I don't think I could give the part-time one the same level of focus. Did your chums find the MBA worthwhile and did it help their careers much?

I think the timing is perfect. A recession is coming, bonuses this year will be poor and hopefully by the time I come out, things will have picked up again. I didn't know this when I applied but timing is definitely in favour of going now.
Stevey

Bismarck

What degree did you get first time around and what do you do now? There are loads of questions on my mind, but I'll start with those two...

Poolman99

Yeah definitely two questions I'd ask too. I hope you're not just stuck in a bit of a rut and fancy doing something different. How much thought have you given to part-time studies? What about finding an organisation to work for who will help you through it? - even if you have to take a pay cut.

Poolman99

And I'd be wary of a university that wants to lend me money to do their course.