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    • VT82
    • By VT82 1st Mar 12, 5:09 PM
    • 1,052 Posts
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    VT82
    • #2
    • 1st Mar 12, 5:09 PM
    • #2
    • 1st Mar 12, 5:09 PM
    What a joke. Even though they seem to loosely grasp that overpaying will probably just end up being throwing money away, they go on to suggest you should do it anyway to help Government and taxpayers out? So the ASI really thinks the Government is a charity that needs people's money more than actual charities or the graduates themselves do?
    • poppy10
    • By poppy10 1st Mar 12, 6:37 PM
    • 6,226 Posts
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    poppy10
    • #3
    • 1st Mar 12, 6:37 PM
    • #3
    • 1st Mar 12, 6:37 PM
    Now a more typical example
    Even a graduate on a starting salary (£25,000) which rises at 2% above inflation for 30 years, who has taken the full £9,000 tuition fee and maintenance loan of £5,500 would have accrued a total borrowing of around £43,500.
    According to www.studentfinancecalc.com, their repayment over the 30 years before the debt is written off (at todays prices) would be £24,940 – far less than their original borrowing.
    Bit cynical to cherry-pick figures to suit your pro-government point of view.

    Here's a "more typical example" of my own:
    A graduate on a starting salary of £24,000, who has taken out the full £9000 tuition fee loan and a £3000 maintenance loan for a three year course will have borrowed £36,000. But they will be forced to repay a staggering £110,420 (or £60,340 in today's money) - much more than they borrowed, and a huge burden on anyone wanting to plan for their long-term future.
    This is assuming average earnings rise broadly in line with RPI, while graduate earnings rise by 4% more than this (graduates typically have large bumps as they climb the career ladder in the early years and a more static income later - I'm earning more than double what I earned when I first graduated).

    The student loan calculator is rigged to assume low salary growth for graduates, of only 1% higher than average earning growth. Changing this default value even slightly leads to massive increases in the amount you have to repay. Sure, if your salary starts low and remains low then you won't have to repay as much, but then what is the point of going to university if this is the career path you are hoping for?
    • jamesd
    • By jamesd 1st Mar 12, 8:13 PM
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    jamesd
    • #4
    • 1st Mar 12, 8:13 PM
    • #4
    • 1st Mar 12, 8:13 PM
    There is a shared risk and benefit here, some to the student, some to society, and society has at present taken the view that there is a benefit in encouraging people to go to university even if their jobs then do not provide sufficient financial reward to repay the loan. For the student such a system substantially reduces the risk and is essential to encourage those from less well of backgrounds and try to encourage social mobility.

    I think it's entirely fair for the Adam Smith Institute and Mr. Buffett to invite people to make additional contributions, as a matter of choice. They can also tell people to buy National Lottery tickets and Premium Bonds if they want to.

    poppy10, the way the repayment system is structured prevents the loan repayments from being a huge burden on long term planning so the example you've quoted is bogus.

    The point of going to university and having a variable repayment level is that the market doesn't necessarily financially reward jobs that society considers worthwhile. The loan repayment structure helps to address that mismatch so that those who do end up with high financial rewards will end up repaying more and may end up clearing the loan.

    Even for people who will eventually repay it may well make sense not to do any early repaying. That's because there is a risk of unemployment or inability to work that could cause any overpayments to be wasted spending for the individual. One possible optimal time to overpay is when enough capital to live for life at a suitably living standard has been accumulated. At that point the risk of overpaying is much reduced and it can make more sense.

    While no system is perfect the graduated repayment approach is a pretty good one.
    • aris
    • By aris 2nd Mar 12, 9:25 AM
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    aris
    • #5
    • 2nd Mar 12, 9:25 AM
    • #5
    • 2nd Mar 12, 9:25 AM
    Ever stop to think that some people don't want to be social leeches and want to pay their debts rather than just let them lapse? If you are going to be a high earner, I certainly would not want a debt around my neck for 30 years knowing full well I could pay it off much quicker.
    • JimmyTheWig
    • By JimmyTheWig 2nd Mar 12, 9:30 AM
    • 11,897 Posts
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    JimmyTheWig
    • #6
    • 2nd Mar 12, 9:30 AM
    • #6
    • 2nd Mar 12, 9:30 AM
    Now a more typical example
    Even a graduate on a starting salary (£25,000) which rises at 2% above inflation for 30 years
    Martin,

    I've said this before and I'll say it again now.

    I don't believe that this is a typical example.

    I believe that a typical graduate salary will rise faster than 2% above inflation.


    Can you get some decent figures to base your typical examples on, please, Martin? Surely you or someone in your team is able to do this.


    The Student Loans Company, on receipt of an application to repay early, should be mandated to produce a quote on the impact to the student. Based on their current salary it should be signed and returned before the money is credited to the account.
    I think that this is a good idea. But I hope, I bloomin' well hope, that if it is implimented it uses realistic assumptions rather than what is classed as "typical" in the article!
    • MSE Martin
    • By MSE Martin 2nd Mar 12, 9:51 AM
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    MSE Martin
    • #7
    • 2nd Mar 12, 9:51 AM
    • #7
    • 2nd Mar 12, 9:51 AM
    Bit cynical to cherry-pick figures to suit your pro-government point of view.

    Here's a "more typical example" of my own:
    This is assuming average earnings rise broadly in line with RPI, while graduate earnings rise by 4% more than this (graduates typically have large bumps as they climb the career ladder in the early years and a more static income later - I'm earning more than double what I earned when I first graduated).

    The student loan calculator is rigged to assume low salary growth for graduates, of only 1% higher than average earning growth. Changing this default value even slightly leads to massive increases in the amount you have to repay. Sure, if your salary starts low and remains low then you won't have to repay as much, but then what is the point of going to university if this is the career path you are hoping for?
    Originally posted by poppy10
    A number of points on this

    1. Not sure why you think I have a pro-government position. I have very often stated I disagree with the changes. I head up the INDEPENDENT TASKFORCE - which is non-govt funded who's board includes the National Union of Students, the Universities, UCAS, student money advisers - on communicating how the system works.

    2. The reason I picked that example wasn't to cherry pick a govt point of view it was by definition to show that in some circumstances you can be earning above the repayment threshold and its still not worth repaying early. Therefore it had to be an example that shows that - and this is a plausible scenario - whether its typical or not is irrelevant for the content of this blog.

    The blog only stated it was more typical not that it was an average. Yet just because it really doesn't matter I've now changed the phrasing and the assumptions to another example which makes the same point which is that SOME STUDENTS won't gain from overpaying.

    3. I take offense that you say the student finance calc is rigged - it is the ONLY calc of its type out there that allows you to change assumptions. The reason you can see the difference changing that stat makes is because the calculator gives you that option! I wanted that to be a part of the calc when we build it so people could see different scenarios.

    4. We assume a graduate salary growth of RPI + 2%, I accept that for some this is stronger in the early part of their career - though it tapers off towards the later part. Yet also rememebr teh calc works on the assumption you are in work at those levels for the entire 30 years - no career breaks, time off, change of direction, periods of unemployment. So the lower RPI assessment helps incorporate that.


    Martin
    Last edited by MSE Martin; 02-03-2012 at 9:57 AM.
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

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  • iberian
    • #8
    • 2nd Mar 12, 9:53 AM
    • #8
    • 2nd Mar 12, 9:53 AM
    Does the outstanding student loan affect ability to get a mortgage? If in a position to be contemplating taking on a mortgage would it be better to try to reduce the outstanding student loan?

    To a very minor extent, but you'd be far better off to put the money in savings to reduce the deposit needed - the gain from that would massively outstrip any student loan impact see www.moneysavingexpert.com/students2012 for more.
    Last edited by MSE Martin; 02-03-2012 at 9:59 AM.
    • JimmyTheWig
    • By JimmyTheWig 2nd Mar 12, 10:15 AM
    • 11,897 Posts
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    JimmyTheWig
    • #9
    • 2nd Mar 12, 10:15 AM
    • #9
    • 2nd Mar 12, 10:15 AM
    Does the outstanding student loan affect ability to get a mortgage? If in a position to be contemplating taking on a mortgage would it be better to try to reduce the outstanding student loan?
    Originally posted by iberian
    I believe that your repayments will affect your ability to get a mortgage, but the size of the loan itself won't.
    Given that the size of the loan only affects on when you will stop paying, not how much you pay, reducing the balance will only help with getting a mortgage if it is reduced to zero.

    To a very minor extent, but you'd be far better off to put the money in savings to reduce the deposit needed - the gain from that would massively outstrip any student loan impact see www.moneysavingexpert.com/students2012 for more.
    I agree.
    • JimmyTheWig
    • By JimmyTheWig 2nd Mar 12, 10:42 AM
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    JimmyTheWig
    SOME STUDENTS won't gain from overpaying.
    Originally posted by MSE Martin
    Absolutely. I think the change away from "typical" in the blog is a welcome one.

    We assume a graduate salary growth of RPI + 2%, I accept that for some this is stronger in the early part of their career - though it tapers off towards the later part. Yet also rememebr teh calc works on the assumption you are in work at those levels for the entire 30 years - no career breaks, time off, change of direction, periods of unemployment. So the lower RPI assessment helps incorporate that.
    Are there really no figures available from which you can build a typical or average scenario?

    My first three annual increases (within the same company, no promotions) after graduating were around 17% a year. Inflation was running at around 3% at the time. I have no idea if this is typical or not. I believe my starting salary was competitive.
    Obviously since then things have slowed down somewhat, but sharp increases like this means you hit repayment (and hit further into repayment) much quicker than you would with steady increases (even with a career break).

    Because it is the only real figures I have to go on, I see myself as typical. I have never seen any of your examples look anything like my pay curve. They always (with the exception of unreasonably high starting salaries, which would generally be ignored as people don't expect to start that high) illustrate lower repayments than what I would have repaid under the same scheme.
    That is why, I think, you are seen as being pro-government over this.

    I think that finding a typical or average pay curve would be key to making this unbiassed.

    Can anyone (Martin?) find the average current salary of a graduate 30 years after graduation? If we had that then we could take off, say, 2% a year for 30 years (i.e. divide by 1.81) to get a starting salary in today's money then inflate that in the calculator by RPI+2%. That would come out repaying slightly more than the average as it wouldn't take into account the lower pay in the first few years. But I think it is more important to get an accurate picture of the last 25 years than it is to get the accurate picture of the first 5 years.
    • tyllwyd
    • By tyllwyd 2nd Mar 12, 10:52 AM
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    tyllwyd
    .... Even for people who will eventually repay it may well make sense not to do any early repaying. That's because there is a risk of unemployment or inability to work that could cause any overpayments to be wasted spending for the individual. One possible optimal time to overpay is when enough capital to live for life at a suitably living standard has been accumulated. At that point the risk of overpaying is much reduced and it can make more sense. ...
    Originally posted by jamesd
    I'm not convinced that overpaying when you are financially comfortable is going to make a lot of differnce because very probably you will be reasonably far into the 30 year repayment period by then - by that time, either the interest has accumulated so much that you are chasing an end point that you are never going to reach, or if you have been on a high salary for a while, your repayments are paying off your loan at a faster rate, so the impact of the interest won't be so great.

    To me, either you take the gamble of paying everything up front and keep out of the system completely, or you accept that you are tied in for 30 years.
  • meher
    if I may go offtopic for a mo, I think mse should create a syllabus for students on basic finance education, sponsored by visa and mastrecard
  • antonia1
    To those who are complaining about the RPI + 2% salary increases that Martin is using in his example - this is not at all unreasonable. In fact, it is the exact same increase assumed by plenty of economists, my financial advisor and my pension company. It may not be perfect (and is actually higher that the pay increases I have had since graduating in 2008), but it does give a reasonable approximation for future earnings.

    Also, can we please stop accusing Martin of being pro-government? He has stated over and over again that he has absolutely no political influence to affect these changes to the student loans. What he is doing (an indeed we should all be doing) is to try to explain a very complicated system to a lot of young people who have no idea how to calculate these things.
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    • jamesd
    • By jamesd 2nd Mar 12, 7:15 PM
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    jamesd
    I think that finding a typical or average pay curve would be key to making this unbiassed.
    Originally posted by JimmyTheWig
    How about mine? There would be just five to ten years of repayments right at the end of the term if my income picture was used and it wouldn't make any sense for me to overpay because most of the debt would be eliminated after thirty years.

    To a large extent this doesn't matter much because a significant part of the focus is explaining to those who are from poorer backgrounds and worried about not earning much that it's safe for them to decide to go to university because the repayments won't be overwhelming for them later. Those from relatively well off backgrounds who end up in relatively well paid jobs already have sufficient income that it's not a huge burden anyway, whether there are overpayments or not.

    In background and earnings history I'm the sort of person that the graduated system ends up protecting.

    I'm not convinced that overpaying when you are financially comfortable is going to make a lot of differnce because very probably you will be reasonably far into the 30 year repayment period by then - by that time, either the interest has accumulated so much that you are chasing an end point that you are never going to reach, or if you have been on a high salary for a while, your repayments are paying off your loan at a faster rate, so the impact of the interest won't be so great.
    Originally posted by tyllwyd
    At that point it's like any other debt, what matters is whether the interest rate makes it worth getting rid of compared to other uses for the money. The really interesting part is the protection for low earners.
    Last edited by jamesd; 02-03-2012 at 8:56 PM.
  • melancholly
    Sure, if your salary starts low and remains low then you won't have to repay as much, but then what is the point of going to university if this is the career path you are hoping for?
    Originally posted by poppy10
    i guess some people at university are there for the love of learning, rather than using it as a stepping stone to the city?!
  • Derivative
    i guess some people at university are there for the love of learning, rather than using it as a stepping stone to the city?!
    Originally posted by melancholly
    In the past this might have been true.

    The tuition fees rise basically makes it a foregone conclusion that going to University is the equivalent of taking a career development loan.

    To anyone starting University today I would have them think long and hard about career choices, because quite frankly, I don't think that the repayments I'll have as a 2010 starter are worth it if not for the potential salary increase, never mind the new system.

    Learning for its' own sake is certainly admirable, but paying £50,000 for a degree and then suffering commercial interest rates? Not for me.
    Said Aristippus, “If you would learn to be subservient to the king you would not have to live on lentils.”
    Said Diogenes, “Learn to live on lentils and you will not have to be subservient to the king.”
    • poppy10
    • By poppy10 2nd Mar 12, 11:12 PM
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    poppy10
    i guess some people at university are there for the love of learning, rather than using it as a stepping stone to the city?!
    Originally posted by melancholly
    When you are paying £9k a year tuition fees, you have to think seriously about whether it makes sense to study a course that will not actually improve your career prospects. It's a shame, I agree there should be a place for people who just want to improve their knowledge or learn more about a subject they love, but the kind of figures we are talking about are crushing burdens and have already started to put people off studying non-vocational degrees.
    Last edited by poppy10; 02-03-2012 at 11:15 PM.
    • setmefree2
    • By setmefree2 3rd Mar 12, 11:50 AM
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    setmefree2
    3. I take offense that you say the student finance calc is rigged - it is the ONLY calc of its type out there that allows you to change assumptions. The reason you can see the difference changing that stat makes is because the calculator gives you that option! I wanted that to be a part of the calc when we build it so people could see different scenarios.
    Originally posted by MSE Martin
    I don't think it is, is it?

    Here's one from the BBC.

    http://www.bbc.co.uk/news/education-14785676

    I think that finding a typical or average pay curve would be key to making this unbiassed.
    Originally posted by JimmyTheWig
    The BBC Student calculator tries to do this I think by analysing projected salaries of different professions.

    Last edited by setmefree2; 03-03-2012 at 12:45 PM.

    • setmefree2
    • By setmefree2 3rd Mar 12, 12:26 PM
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    setmefree2
    MARTIN LEWIS' BLOG I say the Government should TELL people not to overpay
    In fact, I think the system is duty-bound to warn people when they overpay their student loan if they won’t gain from it. Even now, many get it wrong. Under the current system the average salary of people who overpay is just £18,400. While this is likely to be pushed up under the new system, it still means many who pay early will already be financially penalising themselves.
    What? ALL graduates? Are you suggesting that the government should tell ALL graduates not to overpay? How is the government telling graduates not to overpay fair on the one's who should overpay?

    Do you think you worry more about graduates who will overpay when they shouldn't, than graduates who won't over pay when they should? Do you think this is a real assesment of the probablity of the former occuring over the latter or does it just tell us that ML doesn't like paying for something when he shouldn't?

    Is it really the government's responsibilty to start interfering in this way? Afterall, you need a crystal ball to work out whether you should overpay or not, if the truth be known. The government could be putting graduates off overpaying when those graduates should be overpaying.Of course, the reverse could also be true. The government should leave it to the individual to make their own mind up surely?
    Last edited by setmefree2; 03-03-2012 at 12:48 PM.

  • melancholly
    When you are paying £9k a year tuition fees, you have to think seriously about whether it makes sense to study a course that will not actually improve your career prospects. It's a shame, I agree there should be a place for people who just want to improve their knowledge or learn more about a subject they love, but the kind of figures we are talking about are crushing burdens and have already started to put people off studying non-vocational degrees.
    Originally posted by poppy10
    you see most advice being given out is to take a traditional degree since that gives the best chance of a 'good' job and gives the widest range of opportunities to go into. many big firms actively avoid graduates with accounting or business degrees!

    maybe universities should offer degrees in using office applications, telephone manner, multitasking, attendance, annual reporting etc! if the job of a university is to prepare people for work, then that will require a massive change in direction. that isn't happening right now. (it would also result in all scientific research effectively going abroad, which is a shame as although basic research isn't instantly able to have a commercial application, it needs to be done for work further down the line).

    if a uni degree is about a career choice, then my advice would be for people to put it off a few years - making a decision to go to a specialised, purely vocational course that will define and limit your career options for life (since almost no-one will be going back for a second try and paying the fees entirely themselves!) at the age of 17 can't be remotely sensible........

    a student loan is also not a 'crushing burden' either. someone earning £35K - a pretty good wage imo and more than i make - will pay back £105 a month. hardly a 'crushing' amount. this is a loan repaid in proportion to earnings, with terms unlike any other debt. it's a shame that people are still focusing on the totals at this point, especially after reading all of Martin's blogs/guides. (and before anyone misinterprets my position on this, i have always been actively against all the changes, but the fact that they are so badly misrepresented is frustrating and since one of my main concerns was that the changes would harm access, i think it's important to make this point clearly - and apparently, important to make it over and over again).
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