New! Student Finance Calculator 2012
Comments
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I have just been on the phone to StudentFinanceEngland to clarify two points.
I spoke to Gordan Clarkson(ii) The MSE calculator assumes that the threshold will rise each year in line with UK Average Earnings (or RPI+1%), is this correct? Emphatic NO. Once a student takes out a loan he remains on that threshold (currently £21k) for the full term. The threshold may well increase but that will only apply for new students. So each student has the Threshold value at the start of the loan and keeps it throughout the whole term.
All the calculators I have seen are based on the assumption that the thresholds will rise with average earnings. I've no idea - but I'm guessing - that this is what happens with the current thresholds?
If the thresholds don't rise with average earnings that would change the numbers. However, at the lower end (at least) I think it will just mean that more of the debt is written off - the student will still pay back the same amount.
I will try and find some time to play with some figures later.....got work to do
....
Laters 0 -
I've no idea - but I'm guessing - that this is what happens with the current thresholds?
Well upto recently, no.
The current system was introduced over 10 years ago with a threshold of £15k. It has remained at £15k ever since.
I beleive that last year a decision was made to start increasing the £15k threshold but I don't know whether this has happened yet.
As I understand it, the MSE calculator is hard-coded with an increase of RPI+1% per annum, which is currently 4.7% (hands up everyone who has received a 4.7% pay rise this year?).
Personally, I think the MSE assumption is wildly optimistic with the rate of increase plus we have have this report from Gordon Clarkson at SFE that the threshold won't increase at all.
As an example. The MSE calculator assumes that Threshold will increase by RPI+1% each year. Let's set RPI at 3% (lower than it has been for a while, at typically as low as it has been for some years).
Using the MSE assumption
Year 1, Threshold = £21.0k
Year 30, Threshold = £68.1k
(a) I can't imagine it rising that fast. We have NEVER seen the government raise thresholds, allowances at this rate before.
(b) Gordan Clarkson of SFE was admamant that for my son starting university in Oct 2012, the threshold will still be £21k in year 30. That is a massive impact if true.However, at the lower end (at least) I think it will just mean that more of the debt is written off - the student will still pay back the same amount.
No not at all. I think it is pretty much agreed that few students will be able to repay the loan before it is written off and that therefore, the amount paid back is determined by salary and lower threshold alone.
If salary is £45k
at threshold = £21k, repayment = £2,160
at threshold = £22k, repayment = £2,070
So clearly, the total repaid will be higher if the threshold doesn't increase.
Cheers,
Nigel0 -
Hi Nigel,
Sorry I must have misread your post this morning.
I have created my own spreadsheets and in these I have uprated the thresholds with average earnings ( I have assumed this is 4% pa).
If I use the same spreadsheets and keep the thresholds constant at £21k and £42k I find that a graduate on a lower salary pays more (than with an uprated threshold) but pays their loan back quicker. In my scenario the graduate pays back their loan in 26 years instead of having it written off at 30 years. They pay £12k more. (Their loan is fully paid off with the fixed threshold and nothing is written off.)
My middle and higher salary scenarios actually pay back slightly less with the fixed thresholds (from £1k to £2.5k in my scenarios) because they are paying their loans back quicker. The middle earner pays back about 4 years earlier and the higher earner a year earlier.
What have other posters found?0 -
Hi setmefree2,
I find your findings hard to beleive. Every scenario and every calculator I have run points to it not being possible to pay off the loan within 30 years.
This is based on the fact that at an interest rate of between RPI and RPI+3% then the interest is greater than the repayment. Look at the calculators - they clearly show that at the end of 30 years, even for a good career, the amount written off is bigger than the original loan - says it all.
That being the case, if the low threshold (£21k at the moment) does not increase then the student will pay back more over his career. The only way it could be possibly less, is if the extra he is paying is so much that it overcomes the interest.
As for the threshold increasing with inflation. Personally I think it is intended to and that SFE have been poorly advised. The major problem I have is with the lack of T&Cs. Dan from MSE has responded and said that he got the information from the Department of Business. I've seen articles (linked above by the BBC). But if I look at the SFE or Department of Business websites there is nothing. I have yet to find anything formal or contractrual saying that it will increase - in fact I have had the SFE emphatically say the opposite.
Another point is that all I've seen is that the Threshold will increase with inflation. Is that CPI, RPI, or Average Weekly Earnings. I beleive the MSE calculator assumes RPI+1% which is extremely optimistic in my view. I suspect Average Weekly Earnings will be used - this is often less than CPI and RPI, and at the moment is possibly close to Zero or even negative. Hands up who can say that their pay increases by RPI+1% each year - not many, I bet.
It's all very sloppy. If the banks put out a service like this then the FSA and Government would be all over them, hauling them over the coals (PPI for example). But it's one rule for the banks and another for the Government who are permitted to offer financial services in a very sloppy way.
And another thing that makes my blood boil. People are very quick to point out to me that if you earn less than £41k then the interest rate isn't RPI+3% it is between RPI and RPI+3% on a sliding scale. If you earn less than £15k then it is RPI --- true EXCEPT
whilst at university and almost a year following graduation, students are hit for the full RPI+3% even though the vast majority have earning much less than £15k - criminal.
There are so many students and parents that I talk to who beleive that when they leave a three year course they will have a debt of £27k. They don't beleive me when I say it will be more like £31k (at current RPI = 3.7%). Add in a £5.5k maintenance loans and and their debt will have increased by £6k over the 3 years whilst they were studying.
Had the rate just been just RPI (in line with earnings below £15k) then the interest accrued during the study would have been half at £3k.
Cheers,
Nigel0 -
Hi setmefree2,
I find your findings hard to beleive. Every scenario and every calculator I have run points to it not being possible to pay off the loan within 30 years.
I'm not sure why you say this since the MSE calculator, for example, shows many scenarios where the debt is cleared within 30 years?As for the threshold increasing with inflation. Personally I think it is intended to and that SFE have been poorly advised. The major problem I have is with the lack of T&Cs. Dan from MSE has responded and said that he got the information from the Department of Business. I've seen articles (linked above by the BBC). But if I look at the SFE or Department of Business websites there is nothing. I have yet to find anything formal or contractrual saying that it will increase - in fact I have had the SFE emphatically say the opposite.
Another point is that all I've seen is that the Threshold will increase with inflation. Is that CPI, RPI, or Average Weekly Earnings. I beleive the MSE calculator assumes RPI+1% which is extremely optimistic in my view. I suspect Average Weekly Earnings will be used - this is often less than CPI and RPI, and at the moment is possibly close to Zero or even negative.
Disgraceful. I totally agree.It's all very sloppy. If the banks put out a service like this then the FSA and Government would be all over them, hauling them over the coals (PPI for example). But it's one rule for the banks and another for the Government who are permitted to offer financial services in a very sloppy way.
Totally agree. I have no idea why MSE/ML isn't more critical but they/ he seems intent on ignoring all flaws in the system?And another thing that makes my blood boil. People are very quick to point out to me that if you earn less than £41k then the interest rate isn't RPI+3% it is between RPI and RPI+3% on a sliding scale. If you earn less than £15k then it is RPI --- true EXCEPT
whilst at university and almost a year following graduation, students are hit for the full RPI+3% even though the vast majority have earning much less than £15k - criminal.
Totally agree.There are so many students and parents that I talk to who beleive that when they leave a three year course they will have a debt of £27k. They don't beleive me when I say it will be more like £31k (at current RPI = 3.7%). Add in a £5.5k maintenance loans and and their debt will have increased by £6k over the 3 years whilst they were studying.
Had the rate just been just RPI (in line with earnings below £15k) then the interest accrued during the study would have been half at £3k.
All true. But this seems to be popular with voters so what can you do?
So what do you intend to do? Are you going to pay upfront?0 -
So what do you intend to do? Are you going to pay upfront?
I don't know and time is running out to make a decision.
If all goes well then my son is going to do a 4 year course with an additional 1 year industrial placement.
This means his total loan (excluding any fee increases with inflation) could be
£36.0k (fees)
£14.0 (maintenance loan during normal years)
£2k (fees during industrial placment)
£1.7 (maintenance loan during industrial placement)
About £54k
Depending on which assumptions hold true total repayment could be anywhere between £67k and £150k.
Now my wife and I are fortunate enough to be able to fund his education out of our earnings so that is one option we are considering. But our frustration is that the 'loan' does not give a clear indication of what we are likely to pay back, so unlike a normal loan we are finding it very difficult to make a reasoned decision.I'm not sure why you say this since the MSE calculator, for example, shows many scenarios where the debt is cleared within 30 years?
Really, can you give me one - a sensible one.
If I just bung in 3 years at £9k, starting salary of £25k, rest as defualt that doesn't pay off in 30 years - loan = £27k, repayment = £43.7. Even setting RPI to 0%, and it doesn't pay off within 30 years.
I have to set the starting salary to £37k before the loan pays off just before the 30 years is up - loan = £27k, repayment = £111k.
The only way of paying off the loan within 30 years in the calculator is to have very high starting salary and/or increments. The penalty then, seems that you will pay back an awful lot more.
Cheers,
Nigel0 -
This means his total loan (excluding any fee increases with inflation) could be
£36.0k (fees)
£14.0 (maintenance loan during normal years)
£2k (fees during industrial placment)
£1.7 (maintenance loan during industrial placement)
About £54k
Depending on which assumptions hold true total repayment could be anywhere between £67k and £150k.
Does this take into account inflation? Is the £54k now and the £150k in 35 years time?
Also, if you invested your £54k at just 3% interest you/your son would have approximately £150k in 34 years time. At 4% you/he would have £210k. At 5% £295k.
Compound Interest calculator here
http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php#results
http://www.fool.co.uk/Your-Money/guides/the-miracle-of-compound-returns.aspx
(The above doesn't take into account inflation, of course, and if inflation is rising quickly the purchasing power of your money may well be fallng.)Now my wife and I are fortunate enough to be able to fund his education out of our earnings so that is one option we are considering. But our frustration is that the 'loan' does not give a clear indication of what we are likely to pay back, so unlike a normal loan we are finding it very difficult to make a reasoned decision.
So totally frustrating. We all need a crystal ball
. Also, to muddy the waters further, there is the opportunity cost attached to using the £54k for university education. Would the £54k do better elsewhere? Also, as ML points out in scenario 3 - if you are going to give your son £54k would it be better to use the £54k as a deposit on a property? Maybe it would be possible to fund both?
Also, are you sure your son is going to be a high earner? What if your son's plans change? What if your son wants to do a Masters or a PHD? How will you/he fund that? Will you/he have to borrow commercially? Will you/he wish you'd taken the cheaper more flexible government loans when you/he had the chance?
Do you and your wife have your own retirement covered? Do you have enough emergency savings? Are you mortgage free?Really, can you give me one - a sensible one.
The thing I've found is "a good wage" means different things to different people. A good wage in the north is not necessarily so in London for example. Maybe you can make a couple of spreadsheets of your own, to cover your own circumstances. There is a template here that might make this quicker.
http://www.bbc.co.uk/news/education-12767850
About half way down the page on the right.0 -
Exactly, you have described all the sort of thoughts going through my head that is making it so difficult to come to a well-reasoned decision.
On top of that my son has Asperger's Syndrome. He is academically bright in maths and science but lacks social, communication, creative and soft skills.
I guess you have to have a positive outlook and assume that he will do well, but I also find myself thinking "actually he could really struggle at university without our support, he could struggle to find work up against others with more confidence and character, and if he gets work he may not be able to maintain it or climb the ladder".
Terrible thoughts, but if I am objective and think of him not being my son then I do have very genuine concerns.
Of course I hope that he blossoms and and goes on to have a very happy life and successful career.
Two opposite sides of the coin, one where I would consider financing his education and one where I would say go for the loan.
Unfortunately, the current loan system rewards failure, laziness and apathy - do badly, for whatever reason, and you don't have to pay back much (or anything).Does this take into account inflation? Is the £54k now and the £150k in 35 years time?
No inflation. Just the difference between the threshold increasing at RPI+1% (repay £67k) and the threshold not increasing at all (repay £150k).The thing I've found is "a good wage" means different things to different people.
Don't think so. I'm talking about starting salarlies of £40k+ and rising rapidly to be able to clear the debt. I don't think anyone would deny that this is a good salary whether they are in the North or South.
You still have answered my question. You said that there are plenty of examples where the loan is paid off within 30 years and I asked you to give just one. I just asked you to make it sensible - for example a start salary of £50k with an increase of 10% per annum will obviously pay it off but I don't consider that sensible or realistic.
Cheers,
Nigel0 -
You still have answered my question. You said that there are plenty of examples where the loan is paid off within 30 years and I asked you to give just one. I just asked you to make it sensible - for example a start salary of £50k with an increase of 10% per annum will obviously pay it off but I don't consider that sensible or realistic.
With the MSE calculator one scenario is the following:- borrow £9k tuition fees and the minimum maintenance grant of £3.5k pa (which is all a lot of students can get). Starting salary £25k, RPI 3%, salary growth RPI + between 4% and 5%, average UK earnings growth RPI+ 1% - then the loan will be paid off before 30 years (about 27).
Same scenario on "your" great big fat starting salary of £40k, RPI 3%, salary growth RPI+4%, average UK earnings RPI+1% - then the loan will be paid off in 19 years.0 -
Nigel, MSE Dan posted this on another threadHiya,
We have re-checked this info with Department for Business (whose policy this is) and the info in our article is right. From 2012, every new student will start repaying from earnings of £21,000, and that threshold will rise with inflation from 2017.
Many Thanks
Dan0
This discussion has been closed.
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