'The argument over student loans could kill the next generation's...' blog discussion

Furthermore people should be aware that universities DO NOT view students as consumers...this I feel will have to change once £9K/yr fees kick in.

Absolutely.
Universities ware going to be in for a rude awakening if they think students are going to put up with paying £250/week for a couple of lectures and 1-2hr tutorials.....

I'm glad I'm not the only one that's picked up on the idea that many won't repay the debts in full anyway, so the interest rate is largely irrelevent, it just means more will be wiped off their slate after 25 years (I was thinking it was when they turn 65, but that's maybe the old scheme).

Living in Scotland I'm not familiar with the actual levels you can get now in England so i might be wrong in my thinking. Up here we get about £6,000 loan with our fees paid so I assume in England you can get the same, plus an extra amount equal to the values of fees that has to be paid by the student/parents circa £3k maximum?

That's £9k a year under the current scheme so £27k after 3 years or £36k after a 4 year Masters and the target interest rate (inflation) would be 2% and it gets wiped at 65 but you would hope to retire before you were 60 so 25 years working life.

Under the new scheme of 9k tuition fees you'd be up to £45k after 3 years or £60k after a 4 year Masters. The debt apparently gets wiped after 25 years.

It's quite difficult to be accurate because you really have to work with constant salary levels, threshold levels, and interest rates to keep things simple but (I'm using the mortgage calculator):

Old scheme - 25 years £36k at 2% is £1,836 a year which requires about £35k pa earnings. If you earn less than that you won't repay it so your contributions would effectively be a straight 9% of your income over £15k pa.

New fee levels on old scheme - 25 years, 60k at 2% is £3,048 a year which is about £48k pa earnings. Again, if you earn less than that you're not going to pay it off so it's a straight 9% on income over £15k.

New scheme - 25 years 60k at 2% is still £3048 a year but now you need to earn £54k pa to pay that much. If you're not earning that it's still a straight 9% of your income, but this time it's over £21k pa.

If the 'commercial' interest rate is higher and you're earning £54k (or less) all the extra interest is written off (along with the other remaining balance) at the end of 25 years so everyone earning 15-58k pa is in reality going to be £540 a year better off (9% of the 6k increase in the threshold), with a debt that has had effect on their potential borrowing in future and that they now don't have to repay.

The only people that will pay more due to the increased interest rates will be people earning over the 54k average where the additional contributions will go towards/pay off the interest over 2%. I'm not going to work out the exact details as that varies tremendously depending on when they earn the extra and what the interest rate is at each stage.

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I've always been brought up to pay for what I want or not have it, or where loans are essential (eg mortgages) to always repay in full. If you borrow something and agree to give it back you should always do that. But on this I'm also a realist so I'm quite torn on the issue. It's a seperate debate but I was also brought up with, although I didn't get to experiance it myself, free university education and viewed it as the government's investment in the future of the country, which would be rewarded with increased taxes from people earning more money. (I'm opposed to tiered tax as well but that's yet another different debate).

Anyway, the 'free university education' side of me is appalled that the government is planning to have the 'commercial' interest rates applied to the loan. They should already be making their 'profit' by educating people so that they can earn the increased wages they'll pay more tax on. The investment they're making by lending us the money should be limited to that, with the repayment being an equivalent amount to what was borrowed. I can just about stomach that on the grounds that it essentially makes it a deferred investment by the individual. They want to have a degree so they can earn more and have a better life, so fair enough they should pay towards that as well.

The realist part of me though just thinks it's a huge fuss over nothing, with the press and NUS doing nothing to help people get information about the real situation. It's going to have next to no negative effect on anybody and most people will actually be better off (as the repayment figures above showed). The newly increased debt in most cases won't get paid off even under the current system, so what does it matter if the interest rate increases?

I actually had this discussion with a couple on a train a few weeks ago. Their kids are due to start uni in a couple of years time, and they were really worried about the debt their kids were going to be saddled with, one of the kids had even said to them they were considering not going to uni because of it.

I spent 20-30 minutes going through it with them addressing their different concerns even about the current system. It is just so poorly reported to the public at large, thanks mainly to the media banging on about these 10s of thousands of pounds student debts they've all been saddled with as a result of the shameful tutition fees.

I've taken to telling people to just ignore the figure and just look at the deductions system as a whole. 11/12% tax after £5k (whatever the NI rate/threshold is), 31% after £7.5k (from next year) and then 40% after £15k etc for the other brackets. You'll never miss the money they're taking for the loan because you've never had that much before so you're still better off. Somewhere down the line you'll get surprised by a sudden "tax cut", and if you don't then don't then there's no need to worry about the balance because it gets written off.

I hate telling people that they don't need to even think about repaying it because I think everyone should repay it. But the reality is there's no consequences if they don't pay it off in full, so why should they worry.

The most scary thing about student loans and educating people into being in debt for me is that the best way of looking at them is "Here's tens of thousands of pounds, just forget we've given you it. Don't worry about giving it back, if you haven't done it after a while we'll just let you off". Not really conducive to sound financial planning in future. For mature students it's even worse, there you can enter into it knowing full well you'll never pay it back because you'll only have 10-15 years working at the end instead of 25-30.


EDIT - By God I've gone off on one here. Well done everyone who managed to last through that little rant.

EDIT 2 - I've actually just gone back to studying full time, so the big fuss over nothing comment isn't just an "I'm alright Jack" comment.

kaz0705 wrote: »

On Facebook the other day, unrelated to the student fees debate, a friend posted that she's just worked out that it'll take her 200 years to pay off her student debt. [...]

The point for me is not necessarily the fees- I understand *some* need to be levied and I never had a problem with taking my loan. IT's the fact that those on the lowest wage that can start repaying will be doing so forever. Those, like some of my friends, who go to work in the city or as solicitors, will be able to pay it back fairly quick, incurring minimal interest.

Those, like my boyfriend, who has yet to reach a threshold to start paying his back are simply incurring more and more interest as each pay day passes.

This is the key point though - the debts are to be wiped after 30 years. Currently, they're wiped after 25 years. Previously, they have been wiped once you reach certain ages. Therefore, that it might take your friend 200 years (or forever) to pay off the debt if she were forced to do is irrelevant because she isn't forced to do so. The debts also don't count towards credit scoring and they won't form part of her estate if he/she's unlucky enough to die before the debts are wiped.

The true impact of charging real rates of interest (and of increasing the repayment period from 25 years to 30 years and forbidding overpayment) is that a lot more people that previously would have paid off their entire debt before the 25 years were up will instead still be paying off the additional (compounding) interest until the entire 30 year repayment period has elapsed and their remaining debt is then finally wiped. As a result they'll end up paying a lot more.

There is another way to look at this which makes it look less awful.

If you could have earned £20,000 without going to uni, you'll still need to earn £20,000 to pay off your loan, because you won't be paying anything.

If you could have earned £30,000 without going to uni, you'll need to earn about £31,350 to pay off your loan and have the same net income as before.

If you could have earned £40,000 without going to uni, you'll need to earn about £42,850 to pay off your loan and have the same net income as before.

If you could have earned £50,000 without going to uni, you'll need to earn about £55,220 to pay off your loan and have the same net income as before.

Is it difficult to imagine that a university education could boost your earning power from £30,000 to £31,350 etc?