Student Loan for 1 year Postgraduates worth it?

jimjamz82 · 19 August 2019 at 6:19PM

As part of a career change going into teaching, I will be going back to University (after 15 years) to study a PGCE for 1 year. I am English and will study in an English University.
Two thirds of the course are actually spent working in schools, with only around 6 weeks of the total year spent in University. Nevertheless, the tuition fees are still the maximum annual amount of £9,250.

I am deliberating whether or not to take a student/maintenance loan to cover the fees. Based on my circumstances, living alone and away from home, I automatically qualify for the maximum amount of the Maintenance Loan (Type 2).

I already have a Type 1 student loan, I am still paying off from my Undergraduate course. Although it could be paid off tomorrow, I am in no hurry to pay this loan off due to the low interest rate of 1.75%. My savings have a higher interest rate, allowing me to earn money from having this loan.

However, the new loans would not financially benefit me at all The thought of having a new type 2 loan, that has rates of between 3.3% and 6.3% (based on RPI and earnings after graduation), does not sound appealing.

I am in a position where I can pay for the tuition fees outright, from savings and a bursary I will receive, or take the student loan (or another type of loan?).

As my course is only for 1 year, and the loan is just the amount to cover the tuition fees, it is highly likely that I will repay this loan off. Whether I graduate and stay onto be a teacher, go back to my previous profession (which is a much higher salary than that of a teacher) or another, all these routes are likely to be over the repayment threshold, either imminently or immediately.

After reading numerous articles on MSE about why not to pay your tuition fees immediately, and why I should take a student loan, do not relate to my circumstances:
https://www.moneysavingexpert.com/students/should-i-get-student-loan/

https://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/
Frankly, I find the example of Paul in this article (point 14) laughable, as that must equate to less than 3% of students deciding to take a loan.

I am not borrowing tens of thousands of Pounds, and therefore, will not see the loan written off after 30 years. If I take a loan, I will pay it off in the somewhat foreseeable future, but will have accrued heavy interest on having that loan, when I didn’t need to take it in the first place.

I am not yet a homeowner, but may decide to be in the future. I know the money could be used towards a house instead of the tuition fees. However, I’ve never had any other debt or loan other than my student loan, and don’t expect to in the future. Everything I have purchased, I have purchased outright with no monthly payments or loans (e.g. cars). I choose not to borrow money for something I cannot afford, and mortgages also fall into this category (although it may ultimately be the only one I may have to change my mind upon).

Are there some scenarios that I am missing where taking a student loan may be beneficial?

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mattvolatile · 19 August 2019 at 6:47PM

Depending on what subject you want to teach, you may well be eligible for bursaries or a fee reduction. Check https://getintoteaching.education.gov.uk/ for details.

If teaching is what you want to do for your career, there are other routes in aside from a PGCE these days (particularly in Free Schools), but the PGCE is still the most straightforward option. Because of that, if teaching is the right route for you, a loan for a PGCE is probably one of several equally good options depending on your subject specialism and where you are in the country.

jimjamz82 · 20 August 2019 at 5:22PM

The PGCE happens to be one of the most suitable routes to see if teaching is the right route for me. I will only find that out once I've started (and paid) for it.

My main concern was whether it is worth taking a student loan or not, given that my circumstances are different to that of the classic young, undergraduate who is going off to university for 3 or 4 years.

I'm a mature student, looking at a career change. The bursary was an incentive as it eased the financial deficit of adjusting to life without a salary for a year. However, the bursary is not enough to cover living costs, let alone any tuition fees.

As a mature student, I have savings that I can use to pay for the tuition fees outright, rather than take a student/maintenance loan to cover these. I am in a different situation to that of a standard undergraduate, because I have a choice as to whether I should pay my own way or not.

The question is, should I do that? Given that student loan rates (Plan 2 stands at 5.4%) are higher than interest on savings, and I am most likely to pay back the entire loan as it is a "smaller" amount than most loans, which don't appear to be realistic in paying back fully, is it worth racking up the interest on the loan?

Sure, I could take the loan and save my own money to be used for rainy day scenarios or future mortgages, but is that worth the additional I will be paying back on the loan in interest?

Am I in some way losing out or at a financial deficit if I choose not to take the loan and pay the tuition fees up front with my own money?

JayRitchie · 25 August 2019 at 4:32PM

Given that the repayment rates for masters degrees are notably lower than for (current) undergrads the same logic can't really be applied - as you have noted.

What is the best risk free return you can get on savings compared with the interest on the loan? Lets say you can deposit £10k at 2% you pay a 3.4% interest rate for the safety of having access to the cash. Is that worth it? I think it depends on how likely it is that you might need the cash, have a period out of work (when you would not repay, or have a lower salary and not need to repay (such as choosing to work part time).

Also, I think you can pay off the balance inc interest accrued at any time should you chose to - meaning that you can wait until the future is clear before writing off the debt.

I think most of the time I would take the loan if my savings were under £50k and I didn't own a home - having a higher deposit may save more in interest and give more choice when buying.

jimjamz82 · 1 September 2019 at 8:01PM

Hi @JayRitchie

Thank you for your reply.

The repayment rates (and accrued interest rates) would actually be the same as an undergraduate taking a loan. To clarify , what I meant to say was, as a 1-year postgraduate teacher trainee, the amount to pay back will be much smaller than the amount an undergraduate would pay back for a bachelors (e.g. 1 year of study vs. 3 or 4 years where a loan amount is taking each year).

Your third paragraph does raise an interesting point. I am in a position where I can take the loan and should it not benefit me in some way, I can choose to pay it back at any time. At least this way, I have the option of deciding what I want to do with it. and how I can invest if further to make it work for me, rather than being a financial burden (suggestions welcome :-) ).

Please could you elaborate a little further on your fourth paragraph? What if I was not a home owner with savings over 50k? Would that change how you would look at taking the loan?

JayRitchie · 1 September 2019 at 9:44PM

jimjamz82 wrote: »

Hi @JayRitchie

Please could you elaborate a little further on your fourth paragraph? What if I was not a home owner with savings over 50k? Would that change how you would look at taking the loan?

My thoughts are that you have a choice of paying cash (or using cash) or borrowing money at about 5.4% which you only need to pay on earning of over c£21k at 5.4%. Lets guess that we can get a safe high interest account of 2% - you pay 3.4% for the utility of not having to repay if your income is lower than expected, you leave your job, fall ill etc.

Thats a pretty big perk - especially since the loan gets written off at some point. Also, if you have a mortgage, you may do better having the money available to dump on the mortgage if it improves your LTV and gets you a better interest rate.

My thought process is to wonder how much capital I would want before paying off the £10k? I think I'd want a pretty large emergency fund - the size of which might vary depending on housing - before turning down such an opportunity.

Lets say you didnt own a property but had savings of £40k. I think I'd rather have the money for use as a deposit to buy a place and live with the additional interest cost. I'd also rather have a decent savings account.

Student Loan for 1 year Postgraduates worth it?

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