Student loan interest - an absolute disgrace (1 Viewer)

rob9872 said:

No.
Everyone pays the same rate and the same amount back. If they earn less they pay over longer so accrue more interest but that's true however rich you are as it's earnings related. Not sure why that's so difficult for anyone.

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To be honest, that graph on income percentile is a bit misleading. Are they referring to high salary earners or just overall income (i.e. dividends, etc)? Because I’m sure many who are doing well will be self-employed paying themselves a minimal salary and taking the rest in dividends. Or relying on daddy’s trust fund.

Edit: or, of course, they could be implying rich people pay it off straight away/don’t take out student loans.

rob9872 said:

No.
Everyone pays the same rate and the same amount back. If they earn less they pay over longer so accrue more interest but that's true however rich you are as it's earnings related. Not sure why that's so difficult for anyone.

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Low earners will likely never earn enough to pay back the student loan and will have it wiped after 30 years.

If you are a high enough earner to be predicted to repay the full amount before 30 years the interest rate of 12% will mean thousands of extra pounds on the lifetime of the loan.

SkyBlue_Bear83 said:

Low earners will likely never earn enough to pay back the student loan and will have it wiped after 30 years.

If you are a high enough earner to be predicted to repay the full amount before 30 years the interest rate of 12% will mean thousands of extra pounds on the lifetime of the loan.

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Doesn't answer the question, but thanks for your input Rishi

To be honest as someone with a student debt, I hardly notice what goes out. It gets written off after a while I believe.

it’s not stopped me getting finance or a mortgage.

I was at poly (which became a uni during my 3 years there) when loans were introduced.
I marched and protested against them at the time.

Incidentally, 12% was my first mortgage rate....ouch!

rob9872 said:

No.
Everyone pays the same rate and the same amount back. If they earn less they pay over longer so accrue more interest but that's true however rich you are as it's earnings related. Not sure why that's so difficult for anyone.

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This is why Tories shouldn't be allowed to run the country, they have no grasp of arithmetic. Look again at the numbers, and stop being so deliberately dim.

If you earn less you end up paying more back. These new Tory rules obviously benefit the richest. Both The New Statesman, The Guardian, and the Government's own analysis show that.

It's not hard to understand, unless you're deliberately trying to muddy the water, the question is, is that fair?

Here's an example that clarifies the point:

The analysis shows that the lifetime repayments of a graduate in 2023-24, earning £22,000 in current prices with projected lifetime earnings of £850,000, would rise by 150% – from just below £9,700 now to £24,000.

In contrast, the loan repayments of a graduate in the top 10% of earnings with an annual pay of £88,000, who would enjoy lifetime earnings of £3.5m, would drop from £53,000 to £39,000.

shmmeee said:

No I don’t mind: £70k, with post grad and under grad loans. It’s not putting me in poverty but I’d be lying if I said it didn’t grate.

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Just curious how much you borrowed in student loans?

I ask cos there is no penalty for early repayment so surely with a strong salary and skills set, you should be able to borrow at a far lower rate? Why not borrow a chunk at lower rate and then pay the student loan off in full?

In a nutshell, the threshold to start paying back has substantially dropped, the period before write off has substantially increased to 40 years, and the interest rate is now linked to inflation.

I work in consumer finance, these days specifically on mortgages. Student debt is considered when scoring customers, so it will affect whether we loan, how much we loan, and what rate we'll loan at (by dint of what product we'd be prepared to offer). So there will be an ongoing impact there on poor to middle income students as well.

Finally, no one should ever have to take on a debt with an interest rate linked to CPI. That's financial madness. It is also completely unnecessary as a lender.

The rate banks loan at is broadly related to the rate they can borrow at. There's no justification for setting the rate of new student loans at CPI. Even very small interest percentage points will make a big difference in the overall cost of a long term debt.

Like most of this Government's plans, the politest thing you can say is that it's not been thought through; alternatively you could see it as directly helping the rich at the expense of the poor.

rob9872 said:

Doesn't answer the question, but thanks for your input Rishi

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What's the question then?

duffer said:

Here's an example that clarifies the point:

The analysis shows that the lifetime repayments of a graduate in 2023-24, earning £22,000 in current prices with projected lifetime earnings of £850,000, would rise by 150% – from just below £9,700 now to £24,000.

In contrast, the loan repayments of a graduate in the top 10% of earnings with an annual pay of £88,000, who would enjoy lifetime earnings of £3.5m, would drop from £53,000 to £39,000.

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Hey could you explain this to me?

Is this due to the frozen threshold at which loan repayments begin rather than the interest rate? Meaning low earners will be paying 9% on a greater portion of there wages? And as they will never clear the loan they will obviously end up paying more than they would have before it is written off?

And a high earner is paying less now as the frozen threshold means they will now pay off the loan quicker now?

duffer said:

Here's an example that clarifies the point:

The analysis shows that the lifetime repayments of a graduate in 2023-24, earning £22,000 in current prices with projected lifetime earnings of £850,000, would rise by 150% – from just below £9,700 now to £24,000.

In contrast, the loan repayments of a graduate in the top 10% of earnings with an annual pay of £88,000, who would enjoy lifetime earnings of £3.5m, would drop from £53,000 to £39,000.

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but this is rubbish as your are arguing the “poor pay more” but it’s an apples on orange argument as it’s an attempt at wage assumption

The other skewed stat anywhere here surely is that even modest income families have to find money to fund students through the system as the loan is means tested

duffer said:

In a nutshell, the threshold to start paying back has substantially dropped, the period before write off has substantially increased to 40 years, and the interest rate is now linked to inflation.

I work in consumer finance, these days specifically on mortgages. Student debt is considered when scoring customers, so it will affect whether we loan, how much we loan, and what rate we'll loan at (by dint of what product we'd be prepared to offer). So there will be an ongoing impact there on poor to middle income students as well.

Finally, no one should ever have to take on a debt with an interest rate linked to CPI. That's financial madness. It is also completely unnecessary as a lender.

The rate banks loan at is broadly related to the rate they can borrow at. There's no justification for setting the rate of new student loans at CPI. Even very small interest percentage points will make a big difference in the overall cost of a long term debt.

Like most of this Government's plans, the politest thing you can say is that it's not been thought through; alternatively you could see it as directly helping the rich at the expense of the poor.

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Thank you for mentioning the link to CPI.

Also a bit surprised (well, actually not really) that the debt is considered in mortgage applications etc as it states that student loans will not be considered against your credit score. But I guess that's not the same as a financial institution doing due diligence on a lending application and considering what obligations you already have.

So once again something that is painted in a better light than it actually is as prospective students will think it won't affect their ability to get a mortgage etc in future.

SkyBlue_Bear83 said:

What's the question then?
Hey could you explain this to me?

Is this due to the frozen threshold at which loan repayments begin rather than the interest rate? Meaning low earners will be paying 9% on a greater portion of there wages? And as they will never clear the loan they will obviously end up paying more than they would have before it is written off?

And a high earner is paying less now as the frozen threshold means they will now pay off the loan quicker now?

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With apologies, I'm doing this on the phone, otherwise I could work the figures through (though I'm reasonably confident the New Statesman has it right!).

In essence it's a combination of all of the changes.

A lower threshold means that more low earners will be pulled in. A longer repayment period means that there's less chance of having the debt written off if you're a low earner, and also that you have to pay it back for longer; and then a much higher interest rate means that the longer the debt exists, the more you'll end up paying.

High earners will always be pulled in, and because they will clear the debt more quickly now, they'll pay less. The interest rate hike has much less impact on them for the same reason, it will compound over a much shorter period, so won't add as much to the total.

So in essence, the poorer you are, the more you'll pay under the new rules (in relative terms at least).

I'm sure there's a better way than this. Countries like Denmark who I believe still have free access to higher education, are neither bankrupted nor overrun with applicants. In fact I think their take up in University is proportionally lower than ours.

There's some proper thinking to be done on the whole issue, imho, but I'd start by rejecting a regressive, sticking-plaster solution like these current proposals.

duffer said:

With apologies, I'm doing this on the phone, otherwise I could work the figures through (though I'm reasonably confident the New Statesman has it right!).

In essence it's a combination of all of the changes.

A lower threshold means that more low earners will be pulled in. A longer repayment period means that there's less chance of having the debt written off if you're a low earner, and also that you have to pay it back for longer; and then a much higher interest rate means that the longer the debt exists, the more you'll end up paying.

High earners will always be pulled in, and because they will clear the debt more quickly now, they'll pay less. The interest rate hike has much less impact on them for the same reason, it will compound over a much shorter period, so won't add as much to the total.

So in essence, the poorer you are, the more you'll pay under the new rules (in relative terms at least).

I'm sure there's a better way than this. Countries like Denmark who I believe still have free access to higher education, are neither bankrupted nor overrun with applicants. In fact I think their take up in University is proportionally lower than ours.

There's some proper thinking to be done on the whole issue, imho, but I'd start by rejecting a regressive, sticking-plaster solution like these current proposals.

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Great post Duffer thanks. Do you think any single party could tackle the issue or will it take co-operation from all sides? Are there any politicians or ‘thinkers’ who have come up with a reasonable plan in the past?

I have just began making repayments but fortunately they aren’t crippling at the moment.

SmithyCCFC said:

Great post Duffer thanks. Do you think any single party could tackle the issue or will it take co-operation from all sides? Are there any politicians or ‘thinkers’ who have come up with a reasonable plan in the past?

I have just began making repayments but fortunately they aren’t crippling at the moment.

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Personally, I think we need to think of all forms of higher education as equal, whereas at the moment it is very much perceived as university and degrees as being superior. Vocational things need to be thought of as just as worthwhile.

In terms of paying, interest definitely needs to be considered at either being limited to the base borrowing rate at the time of borrowing at the very most.

Personally, I think the debt should just be the amount borrowed, as the point of education is suppsoed to be for the benefit of society rather than profit for money lenders. Therefore having the loans as being interest free (in the old days students used to get grants) so there is no advantage to being able to repay earlier (though those who did not need it could still benefit by being able to invest it). You could also have a progressive repayment rate, so those on higher incomes repaid more.

As for when the debt would be wiped out, I'm not sure. Perhaps as an offset to the not paying interest this length of period could be extended although ideally I'd rather leave it or even shorten it to 20-25 years.

It's still not ideal solutions, but I feel far fairer than the current system.

SmithyCCFC said:

Great post Duffer thanks. Do you think any single party could tackle the issue or will it take co-operation from all sides? Are there any politicians or ‘thinkers’ who have come up with a reasonable plan in the past?

I have just began making repayments but fortunately they aren’t crippling at the moment.

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Apologies mate, never responded to this. Thank you for the kind words, in fairness I think SBD's idea above are pretty solid. To me, at least, it feels like the root of the problem is trying to monetise something that is of benefit to the whole of society.

If graduates generally earn more than non-graduates, which seems to be accepted, then with a genuinely progressive taxation system the state will get something back anyway in financial terms. The question then is how much should an individual contribute to their further/higher education?

I'd start with nothing and go from there, in the way that it used to work for most people here over 50 who went to University (or Poly, or College). But the whole system needs review, not just the level of student fees.
There's an assumption at the heart of all of this that the 'market' could do a better job of higher education than the state could. So make students consumers and have Universities compete for their 'business', then it will become cheaper for the state and competition will drive down costs for consumers.

But when you look at the figures even now the opposite has happened, with the state still on the hook for huge amounts of money in student debt that's never going to be repaid, and universities are all charging the maximum possible whilst competing for student numbers.

In my opinion, It's just another example of how things designed for the public good (education, health, transport, utilities) are usually less efficient overall when (often notionally) opened up to market forces.

Personally, I wouldn't start by trying to reform student fees, it's a bottomless pit of debt unless you want to make it even more unfair and expensive (as demonstrated above). I'd start by looking at what we want from higher education and how we can properly fund it as a nation, rather than as an individual and corporate profit making exercise.

Some interesting articles here, if you're really still interested:

All I see really is that I have been docked £100+ a month for the last few years which doesn’t even reduce the overall debt. So who benefits from that arrangement?