New Student Loans at 5.5%

[reggie]

It might come to a shock to some that new students are being charged 5.5% interest on their loans from day one of their studies.

This means that graduates will need to be on 49K to keep pace with the interest payments.

Harsh.

Blog piece

http://www.huffingtonpost.co.uk/andrew-cunningham/student-loan-interest_b_5758430.html

[Huguenot]

I can only assume that Andrew Cunningham, Consultant Therapist to ITV, was drunk when he wrote that blog.

It may well be that he has a very important issue to raise, and if it's true then it's something we should worry about.

But having read it, I am none the wiser.

So it will fall to you, reggie, to check his facts and report back in a more coherent manner than he.

[millymoll]

It isn't the clearest article I've ever read, but I don't know why you suggest he was drunk. It certainly is an important issue for those of us with offspring heading off to university this year. We thought, like many of our friends, that the loan was interest free, but it is indeed charged at 3% or so above the current interest rate and the interest starts mounting up from the day it is borrowed, not, as previously, when the degree is completed. This does indeed mean that some graduates will be paying off their loan for 30 years until the cut-off point, or they will be trying to avoid earning enough to pay it back - not great for encouraging young people to aspire to achieve their full potential.

[reggie]

New students who start this year are deemed plan 2 under a new scheme. These students will be charged 5.5% from day one of their studies until they pay off the loan or within 30 years, whichever is sooner.

The link for this is http://www.slc.co.uk/services/interest-rates.aspx

Graduates will struggle to pay the interest charged on the loan so the student loan will rise over the years.

For instance a graduate salary of ?25,000 will trigger an annual repayment of ?360 but this will not cover the interest payable (eg 5.5% on a loan of ?45,000 is ?2,475). Hence the loan increases by the difference, in this example, to ?47,115.

The effect on the student and new graduate is defeatist. With little or no hope of preventing the ballooning of their student debt, the graduate is not motivated to pay. Presenting them with an impossible debt mountain that only the very highest earners ( possible just 1% of the population) can tackle is a recipe for disengaging with the system.

The new system seems counter- productive for the government who surely want graduates to pay for their courses. Graduates know that their studies give them a higher chance of earning more and they accept, in general, they should pay for that privilege.

Presenting graduates with an impossible student loan bill will turn responsible young people into cynical tax payers or tax avoiders or goad them to achieve less in their lives.

[Huguenot]

Interesting calculations, I don't know what I think about this.

What's your proposed solution then? Would you prefer the traditional model where places are more limited and university fees for entitled wealthy kids were paid for by working class taxpayers?

The basic student loan model is simply to ensure that university fees are only paid by those who go, not by those who didn't - a not unreasonable objective.

;-)

[reggie]

This new model (plan 2) means that most students wont pay for their university fees, they are simply given a bill that can't be paid. As most objectives go, that one seems a bit pointless.

[Loz]

So, the rich ones will pay their loans back at a stupid interest rate and the poor ones won't?

Seems rather a lefty policy.