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    • MSE Rosie
    • By MSE Rosie 14th Jul 17, 5:16 PM
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    MSE Rosie
    Guide discussion: Should I repay my post-2012 student loan?
    • #1
    • 14th Jul 17, 5:16 PM
    Guide discussion: Should I repay my post-2012 student loan? 14th Jul 17 at 5:16 PM
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    • koru
    • By koru 9th Sep 17, 10:37 AM
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    koru
    Have I made a mistake?

    I am going into my final year of study and only took a loan out on my first year of study so at the moment my debt is £9,000 + interest. As I have paid off a year of study already, am I better off paying all of my student fee's off or taking a loan for my final year?
    Originally posted by Billy1996
    So, you have £9k that you could use to cover your year 3 fees, but you want to know if it is better to hang on to that money and instead take a further £9k student loan, leaving you with a £18k loan?

    As others have said, it depends what you would otherwise do with the £9k and what you will earn over the 30 years after you graduate. You can get an idea of the latter from the following Economist data, which shows the average salary, 5 years after graduation, for most subjects:
    https://www.economist.com/blogs/graphicdetail/2017/08/graduate-earnings

    So, you can find the average salary, 5 years after graduating, for your subject and university. You should have a fair idea whether you are heading for a first or a third, which will influence whether you earn higher or lower than the average for your class.

    Most graduates will be on £30k after 5 years, so that is £9k above the £21k threshold, which means they will be paying 9% x £9k= £810 per year. If their salary continues increasing, they will be paying off more. I would guess most graduates will have paid off a £9k or £18k loan while they are in their 30s.

    Unless you are studying, say, creative arts at a uni that has unusually low selection criteria (or you expect not to be in work most of the 30 years), I'd say you are likely to pay off a £9k or £18k loan in full. This means you are unlikely to benefit from any of the loan being written off.

    Even then, you might be better taking the loan, if this means you can use the money for something that earns you higher interest than the SLC interest. That includes reducing other loans (such as overdrafts, credit cards, mortgages), which saves you interest at a higher rate than the SLC interest.
    koru
    • ken roberts
    • By ken roberts 4th Feb 18, 12:17 PM
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    ken roberts
    I am not currently a student ( I graduated more than forty years ago) and I applaud Martin for his efforts to put this issue into perspective. It would be a great step forward officially to remove the concept of 'debt', with all its bad connotations of millstones round necks, ultimate personal bankruptcy and even the Marshalsea. If you must think in terms of debt, then try comparing it to the so-called ' Third World ', where countries borrowed money they struggled to pay back and were eventually in such dire straits that the lenders were forced to cancel the debt completely. With student finance you may feel you struggle to pay it back, but unlike ordinary debts like mortgages, car loans and the like, there is no life-long millstone and the system has a built-in guarantee that any liability to repay the sum outstanding disappears after thirty years. Wouldn't developing countries have loved a loan like that. What today's graduates have is a Personal Payment Plan and while Martin's description of a 'graduate contribution tax' is a bit clunky, it's accurate and is the best one available. I certainly haven't yet thought of a snappier title.
    Is it a good deal? Well, try applying the system to a house mortgage instead of a student loan. If you think you might currently be able to afford a £150,000 house, wouldn't you like to be able to go to the government , who would give you the money to buy the house and then say you need only repay a small percentage of what you earn above a low benchmark? What we'll do is add interest onto the sum outstanding, but after thirty years, whatever the total, it will be written off and you'll still own the house? An even better deal, you apply for a house costing £450,000 ( because it's just up the road and has a dedicated parking space) and the government still give you the money, still only want the same repayment as for the cheaper house and still write off the much-larger accumulated sum outstanding after thirty years!
    You can call such a mortgage comparison absurd, but that just illustrates why the Graduate Contribution Tax is different to a normal debt.
    The universities obviously understood the reality of the system, which is why they all queued up to charge the maximum amount for course tuition. They get the maximum money from the government up-front and leave the government to worry about reclaiming graduate contributions.
    I went to university 1968-73, when course fees were paid directly by government and I received a maintenance grant. No repayments required. However, the reasoning was that graduates were probably going to have a much-better paid career than if they didn't go to university, so over a working life of forty years the Treasury would get back much more in tax than it would otherwise and the investment was worthwhile. Importantly, however true this was, no-one could quantify it.
    Was I better off than today's students? It seems to me that in important respects the modern system is the same as that of yore. Course fees are still paid by the government and the student still receives money for maintenance. The difference concerns the attempts to quantify the students' contribution to defraying those costs over a working life. In my day it couldn't be done, so no worries were generated. Now an individual sum can be attached to each graduate and you can track how much he or she is contributing each year back into the nation's coffers. This insistence on information, transparency, call it what you will, generates the anxiety. So yes, I probably was better off, but only because I was more positive about graduating because no-one bothered to keep telling me how much I owed the state.
    One final thought . As to the politics, Mr Corbyn and the Labour Party should be supporting this system for its pure Marxist credentials. If I may re-order Karl's phraseology from 'The Critique of the Gotha', the student loan system fits exactly " to each according to his needs, from each according to his ability ( to pay-my italics)
    Originally posted by BoxerRules
    The write off after 30 years is not guaranteed. My worry is that our house, that will eventually be left to our four children, who each have a debt of £50,000 will be used to pay off their debt, or seized by a debt collector. Which leads me to another point ...how is inherited income to be treated. Also two of my kids took post graduate degrees and will eventually be paying 35% of their income over £21000 in taxes (income tax and student tax)
    And if they do eventually earn over £45000 they will be paying 55% and over £150000 60% tax.
    • Ed-1
    • By Ed-1 4th Feb 18, 5:23 PM
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    Ed-1
    The write off after 30 years is not guaranteed. My worry is that our house, that will eventually be left to our four children, who each have a debt of £50,000 will be used to pay off their debt, or seized by a debt collector. Which leads me to another point ...how is inherited income to be treated. Also two of my kids took post graduate degrees and will eventually be paying 35% of their income over £21000 in taxes (income tax and student tax)
    And if they do eventually earn over £45000 they will be paying 55% and over £150000 60% tax.
    Originally posted by ken roberts
    It's unlikely to change for existing post-2012 loans as it's set down in law in the loan repayment regulations.

    As for repayments, from April 2018 post-2012 undergraduate loans are repaid at 9% above £25,000 (a threshold which will rise with earnings growth thereafter). Postgraduate loans are repaid at 6% above £21,000 (a threshold that will be reviewed by 2021).
    • kelsallphil
    • By kelsallphil 5th Feb 18, 3:20 PM
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    kelsallphil
    I have just e-mailed Sam Gyimah to suggest that the annual statement from the SLC should contain a calculation to show if the loanee continues to pay off at the rate of the last 12 months whether they will or will not pay off their loan before the 30 years.

    Taking into account existing interest rates then the date of repayment will either mean - they repay the full amount or part will be wiped off.

    If it to be wiped there is no advantage to paying it off but if it will be paid off them additional payments will reduce the interest charge. It could then be a case of taking out a 4% loan to repay the 6% interest SLC!

    But from the above it is clear there is confusion from so many. So a final paragraph on the SLC statement will help.

    Will Martin join in pushing for this request to be actioned by the SLC?
    • Emcow95
    • By Emcow95 12th Feb 18, 8:04 PM
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    Emcow95
    I have a very small student loan around £600 due to my course being pulled 5 weeks in. I've only just started to repay it as I had a one off bonus which must have put my wage over the threshold, would I be better just paying it all off before the interest piles up or should I get in contact with the student loans company and stop the repayments as my salary is actually under the threshold and carry on ignoring it until I have to start repaying if I ever earn enough to need to?
    • LizzeyK
    • By LizzeyK 4th Jun 18, 4:44 PM
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    LizzeyK
    Hi all. Just reading the guide. I thought repayment difference for tuition fee loans (repayable on earnings of £25,0000) & maintenance loans (repayable on £21,000). Is that right? If so, guideneeds to make clearer
    • koru
    • By koru 5th Jun 18, 12:06 PM
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    koru
    Hi all. Just reading the guide. I thought repayment difference for tuition fee loans (repayable on earnings of £25,0000) & maintenance loans (repayable on £21,000). Is that right? If so, guideneeds to make clearer
    Originally posted by LizzeyK
    I have never seen any suggestion that the threshold for maintenance loans is lower. Do you have a source you can quote?
    koru
    • LizzeyK
    • By LizzeyK 6th Jun 18, 9:37 AM
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    LizzeyK
    UCL e-mailed my Sixth Form student son in advance of a UCL open day to tell him about student finance & quoted these repayment thresholds. I have contacted UCL and they have confirmed that this was an error (phew) & the repayment threshold is £25,000 for ALL types of loan. Quite staggered UCL could have made such a mistake. They have promised to correct in all future correspondence, so thankfully panic over. Money Saving Expert Guide 1, UCL nil
    • Bazooka Joe
    • By Bazooka Joe 4th Aug 18, 5:07 PM
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    Bazooka Joe
    30 years to trust governments - a long risky bet?
    Fascinating articles and especially unwinding the confusion and the political games played over many years, for which many thanks.

    I have one son at university and hope my daughter subject to A level grades will start this October. Both upon seeing the figure of 6.1% have been shocked (accepting this applies across their study period initially before the working career earnings related calculation kicks in) which shows that they have at least learned something I think!.

    Both hold considerable value in personal savings plans plus ISAs, LISAs and SIPPs established by my wife and myself for them since birth. Because of parent's earnings levels they will only get the lower maintenance grant and we already meet accommodation costs directly in helping finance.

    Which given none of us (children or parents) has any trust in there being no material government changes in policy or collection for the next 30 years (the onset of BREXIT only adding to that confusion), I suspect we will end up with a strategy of each child now funding their own maintenance; parents funding accommodation (as currently); and, each child only drawing tuition fee loans with an intention to consider repayment after graduation subject to how matters then stand overall.

    This may go against the general thrust of the guidance given in the article but with "surplus cash" (a relative term it is accepted) and obtaining certainty being the key determinants for us at least.

    P.S. Wonder if in the face of an onslaught of IHT for more estates in recent years (largely driven by property values) how long it will be before gifts to help relatives pay off university loans becomes an exempt transfer on death?!
    • EABowden
    • By EABowden 18th Aug 18, 3:02 PM
    • 144 Posts
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    EABowden
    Pay off if dropping out?
    Sorry, I expect this has already been asked, but I'm so confused.

    According to Martin's guide, the amount you repay is unaffected by the amount you borrow. So someone with a £10k loan pays the same as someone that borrowed £100k.

    https://www.moneysavingexpert.com/students/repay-post-2012-student-loan/

    If you went to uni for a year and decided it wasn't for you, you'd have a loan of around £10,000.

    In my head, it doesn't make sense to pay the same for that loan as someone who stayed for 4 years and borrowed close to £50,000. What am I missing?
    • Ed-1
    • By Ed-1 18th Aug 18, 3:09 PM
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    Ed-1
    Sorry, I expect this has already been asked, but I'm so confused.

    According to Martin's guide, the amount you repay is unaffected by the amount you borrow. So someone with a £10k loan pays the same as someone that borrowed £100k.

    https://www.moneysavingexpert.com/students/repay-post-2012-student-loan/

    If you went to uni for a year and decided it wasn't for you, you'd have a loan of around £10,000.

    In my head, it doesn't make sense to pay the same for that loan as someone who stayed for 4 years and borrowed close to £50,000. What am I missing?
    Originally posted by EABowden
    You're not missing anything. It's a 9% contribution based on earnings, not a full loan repayment regardless.
    • sheramber
    • By sheramber 18th Aug 18, 4:32 PM
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    sheramber
    Regardless of the size of the loan the repayments are set at 9% of earnings over a set amount. But the larger loan will take more repayments to clear and depending on earnings either loan may not be repaid in full.
    • silvercar
    • By silvercar 20th Aug 18, 4:50 PM
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    silvercar
    In my head, it doesn't make sense to pay the same for that loan as someone who stayed for 4 years and borrowed close to £50,000. What am I missing?
    You are more likely to clear the lower loan in full and have no further payments.
    • Hhouse
    • By Hhouse 2nd Sep 18, 9:49 AM
    • 1 Posts
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    Hhouse
    Should I take out a loan at 2.7% to pay my postgrad loan whcih is being charged at 6.3%
    Hi


    I took out a postgrad loan for £9000 in 2016. I finished my studies in September 2017 and am due to start paying the loan back in April 2019. ( based in info I have been given from student loan company) . I have been charged at 6% since September 2016 and have currently racked up £700.00 ish of interest. I an now working and earn just over £46,000.


    I am thinking to get a personal loan to pay of the student debt as this is charged only at 2.7%.


    I s there any flaw in my plan that anyone can think of please?


    Thank you
    • WendyS63
    • By WendyS63 8th Oct 18, 12:32 PM
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    WendyS63
    My son is a medical student so I think Martyn is giving the wrong advice and people should seriously look into this. By the time his 6 year course in medicine is over, he has intercalated at the moment he will owe more than £100 000, that will be a lot more if we had not decided to self fund.
    His interest at the moment for one month is £267, going up monthly. He will hopefully be in a well paid job at the end of his training and I grant you he will only pay a small amount back every month to start with which will not even touch the interest being added on every month. By the time he has been working 10 years goodness know what he will owe but he is edible to pay it all back. This is yet another unfair tax. I am so angry that this has been allowed and only the ones who will not pay it back are being spoken about, check your stamen. It is in Student Loans in Scotland! They do not send you the statement, asked twice and two weeks later still nothing but Student Finance found it for us. It should be sent to the student every month so they can physically see the amount they are being charged when they have no means of repaying it so keeping the loan down. They should hang their heads in disgust.
    No wonder all the doctors etc go and work abroad and go private, and I never thought i would say that!!
    • GDog
    • By GDog 21st Oct 18, 7:00 AM
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    GDog
    Martin's guide is very useful, but I am still unclear about one aspect of the interest.

    Before I get to that, I do find it iniquitous that the higher rate of interest is charged between the course ending and the loan entering repayment. There is no logic for that. The lower rate should apply.

    So, I have tried a couple of times to get the SLC to explain how the interest is calculated.

    They told me that they work out the interest annually and then divide it by 12. They don't. Each month a different amount is added to the outstanding balance.
    They then said it was adjusted to take account of the days in the month. It isn't as months of the same length have been getting increasingly "expensive".
    So I asked what the effective interest charged is? They quoted the published rate. They deny it is compounded, yet it is. It took a very long time to get them to admit that the interest is compounded.

    So, I ask myself why the lack of transparency? At the current bottom rate of 3.6%, without any repayments, the debt would double in 20 years.

    Who benefits from this?

    I'm not worried as I am unlikely to earn over the threshold.
    • Alonso14
    • By Alonso14 24th Oct 18, 4:22 AM
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    • 8 Thanks
    Alonso14
    I dont follow Martin's example of inflation: if wages do not increase in line with RPI, then even if interest was RPI + 0%, it is still costing me more to repay the loan
    • Jake Formby
    • By Jake Formby 25th Oct 18, 4:30 AM
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    Jake Formby
    Inheritance to pay off student debt
    I am a recently graduated student with a debt of £48,000. As an Arts student I have just taken a minimum wage job. Although I hope to be earning more in the future, I do not ever see myself making the top 17% or so for whom doing anything other than simply paying the 9% makes sense.

    However, I recently inherited £500,000 from my grandfatherís will and I am very confused as to what to do. If I invest this sum at an annual return of 5%, then the interest income plus my minimum wage income will immediately place me in the top repayment tier for whom repaying the whole student debt immediately makes sense.

    However I have also thought of investing in a capital-growth investment that pays no income but accumulates capital. I understand I would be subject to Capital Gains Tax if I ever want to use any of this money (to buy a house for example), but as I understand it the CGT would be free from any 9% student loan addition and my student debt & repayments schedule would still behave in response to my minimum wage income status, and so this may be my best way forward.

    Any thoughts / ideas would be most welcome
    • Ed-1
    • By Ed-1 25th Oct 18, 9:18 AM
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    Ed-1
    I am a recently graduated student with a debt of £48,000. As an Arts student I have just taken a minimum wage job. Although I hope to be earning more in the future, I do not ever see myself making the top 17% or so for whom doing anything other than simply paying the 9% makes sense.

    However, I recently inherited £500,000 from my grandfatherís will and I am very confused as to what to do. If I invest this sum at an annual return of 5%, then the interest income plus my minimum wage income will immediately place me in the top repayment tier for whom repaying the whole student debt immediately makes sense.

    However I have also thought of investing in a capital-growth investment that pays no income but accumulates capital. I understand I would be subject to Capital Gains Tax if I ever want to use any of this money (to buy a house for example), but as I understand it the CGT would be free from any 9% student loan addition and my student debt & repayments schedule would still behave in response to my minimum wage income status, and so this may be my best way forward.

    Any thoughts / ideas would be most welcome
    Originally posted by Jake Formby
    Interest income is irrelevant for student loan repayments. It's based on national insurance income (i.e earned income).
    • koru
    • By koru 26th Oct 18, 8:52 AM
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    • 684 Thanks
    koru
    Hi


    I took out a postgrad loan for £9000 in 2016. I finished my studies in September 2017 and am due to start paying the loan back in April 2019. ( based in info I have been given from student loan company) . I have been charged at 6% since September 2016 and have currently racked up £700.00 ish of interest. I an now working and earn just over £46,000.


    I am thinking to get a personal loan to pay of the student debt as this is charged only at 2.7%.


    I s there any flaw in my plan that anyone can think of please?
    Originally posted by Hhouse
    Given the relatively small loan and your reasonably high salary you are unlikely to end up having any of the student loan written off. You will earn enough that you pay off the loan in full within the 30 year limit. So, your plan might be a good one.

    Will you be able to pay off the personal loan before it becomes due for renewal? There's a risk rates on personal loans might go up in future. That's the only downside I can see.
    koru
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