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Martin Lewis: Time To Stop Calling Student Loans A Loan

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http://www.telegraph.co.uk/finance/personalfinance/10245550/Martin-Lewis-Time-to-stop-calling-student-loans-a-loan.html

Another year, another batch of A-level results, another host of fresh face young things cornered by concerned sympathetic TV and radio reporters asked “doesn’t the £50,000 student debt scare you?”

Yet again the fear factor is hyped by people ignorant of the system unnecessarily scaring many already disenfranchised youngsters away from higher education.

Why worry you won’t earn enough to repay student debt

Time and time again, surveys, voxes, or phone-ins show school pupils, new university starters and their parents are scared about not being able to repay their student "debt" after university if they have a low income or lose their job.

Yet this is an irrelevant fear. You only have to repay fees and living costs if you earn over £21,000. And, even then, it’s proportionate to earnings, so you simply repay 9pc of everything above £21,000. If you haven’t cleared what you owe within 30 years, the debt is wiped.

Yeah - and the rest.

Lets do some sums.

Tuition Fee Loan for 2013 entry

The Tuition Fee Loan is available to all Full-time Undergraduate Home/EU students. You can apply through Student Finance England on their website.The Tuition Fee Loan is paid directly to the University on the students behalf and is repaid by the student after Graduation.

For new students starting University in 2013, the fee is £7950.

Loan Amount

The maximum amount of loan full-time students may receive in 2013/14 is: £4,950 for continuing students and £5,500 for new entrants living away from home.

Tuition fees £7,950 x 3 years = 23,850

Living expenses £5,500 x 3 years = 16,500

Total Loan = £40,350 minimum without the loans, credit cards and overdrafts which are pushed onto you by the bankers.

Compound Interest

Interest is charged on the loan at £2,663.10 for the first year, if you cannot afford to make repayments then it will be added to your loan and further interest is charged on the interest.

£40,350 - Graduation

£43,013 - 1 Year after Graduation

£45,852 - 2 Year after Graduation

£48,878 - 3 Year after Graduation

£52,104 - 4 Year after Graduation

£55,543 - 5 Year after Graduation

£59,208 - 6 Year after Graduation

£63,116 - 7 Year after Graduation

£67,282 - 8 Year after Graduation

£71,722 - 9 Year after Graduation

£76,456 - 10 Year after Graduation

.....

I'm afraid Martin Lewis gets a very big economic fail here, I'm surprised the compound interest problem has escaped his attention as he's usually very good at pointing out these flaws about everything else but yet education loans are described as "What we have, is in money terms at least, is a no-win, no-fee higher education.".

So is the hard sell looming for generation debt?

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hes right to an extent because the loan gets wiped out after 30 years so its not fully repayable.

even if the total debt keeps rising you only have to pay a certain proportion of your income no matter how big the debt is.

so if the debt was a million, youll still only pay a percentage of your income.

in essence its more like a 9% tax above £21000, which youll have to pay for between 0-30 years.

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I'm afraid Martin Lewis gets a very big economic fail here, I'm surprised the compound interest problem has escaped his attention as he's usually very good at pointing out these flaws about everything else but yet education loans are described as "What we have, is in money terms at least, is a no-win, no-fee higher education.".

Thanks for this, that figure after 10 years is scary.

I wonder why so many students are still going to university to study subjects in the Arts and Humanities though? I did, although back then the fees were not £9,000. Today I wouldn't even consider it.

I know people do not want some dead-end zero hour contract job at Tesco or to be living at home with their parents forever but why would they go to Uni to study such subjects with such a large price tag attached?

Anyone got family members or kids thinking about Uni?

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hes right to an extent because the loan gets wiped out after 30 years so its not fully repayable.

even if the total debt keeps rising you only have to pay a certain proportion of your income no matter how big the debt is.

so if the debt was a million, youll still only pay a percentage of your income.

in essence its more like a 9% tax above £21000, which youll have to pay for between 0-30 years.

I thought you paid a proportion of your income over £21k for 30 years - you don't "pay it off" in effect?

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hes right to an extent because the loan gets wiped out after 30 years so its not fully repayable.

even if the total debt keeps rising you only have to pay a certain proportion of your income no matter how big the debt is.

so if the debt was a million, youll still only pay a percentage of your income.

in essence its more like a 9% tax above £21000, which youll have to pay for between 0-30 years.

He's right only if the education increases your earnings by more than the sum of the additional "tax" you will pay and the lost earning opportunity for 3-4 years while you study. Today that is not no-win, no fee.

Edited by europbaron

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I thought you paid a proportion of your income over £21k for 30 years - you don't "pay it off" in effect?

yes thats correct. youll never need to pay more than 9% of your income above £21000.

all it means is if your debt is massive, youre simply just extending the length of time the 9% tax will apply to you.

if you start earning above 21k straight away youre just paying a 9% tax on earning above this income for 30 years.

if you dont earn enough for say the first 5 years, your liability will just be 9% of income above 21k for 25 years.

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I also think hes right to an extent, the loan is the best loan anyone will ever get. The fees are high but I don't see why education past 16 should be free.

What I found more interesting was the comments from the parents

"new university starters and their parents are scared about not being able to repay their student "debt" after university if they have a low income or lose their job."

But don't the same parents push their kids in to buying a home as soon as possible with debt 5 or 6 times their income? What about if they have a low income or lose their job! Oh.....

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the thing is if someone doesnt get their sums right, it could blow up like a big pension liability.

the loan has come from somewhere and it has to be paid off by someone. if it doesnt get paid off id assume the state has to take the hit?

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A graduate tax is what the Lib Dems wanted, but they couldn't get it past the Tories, who like to be seen as tax cutters.

So what they brought in is a "loan" which actually functions as a tax.

Trouble is, nobody bothers if you don't earn enough to pay a tax. That's not seen as a loss to Government coffers. However, when in 10, 15, 20, 25 years' time someone works out how much the Government has shelled out in "loans" that haven't been repaid, especially with compound interest, it wil look like a massive loss.

Still, the bunch who brought the scheme in will be in lucrative sinecures or retired or dead by then, so they won't give a monkey's.

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Lewis will be on commission. Like he was when pushing Icelandic banks

Edited by aSecureTenant

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Martin Lewis must be a very trusting soul. Who really believes that once a bankrupt government has a few million fish on the hook for £50k+ they're not going to start playing around with the student loan interest rates and earnings thresholds to maximise revenue?

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Martin Lewis must be a very trusting soul. Who really believes that once a bankrupt government has a few million fish on the hook for £50k+ they're not going to start playing around with the student loan interest rates and earnings thresholds to maximise revenue?

Quite.

Are the thresholds index linked, If not over 20/30 years they'll be busted - if future generations are lucky enough to have their wages rise by anything like inflation, which is doubtful in itself.

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Are the thresholds index linked

Nope. And they never raised the thresholds on the older style loans in line with inflation, so I doubt they'll start now.

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The site has changed ownership ... advocates banker servitude nowadays or is supposed to

Lewis has always regarded student loans and mortgages as what he calls 'good debt' (seems a pretty inane blanket statement to me)

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Martin Lewis must be a very trusting soul. Who really believes that once a bankrupt government has a few million fish on the hook for £50k+ they're not going to start playing around with the student loan interest rates and earnings thresholds to maximise revenue?

Thank god someone noticed. Is there a commitment to index the threshold at which the loans become repayable?

I would bet they will leave it much too late to solve the problem by closing universities that produce "graduates" unable to earn 21k, so beating money out of the people who owe some will be the only option.

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Nope. And they never raised the thresholds on the older style loans in line with inflation, so I doubt they'll start now.

....very few will get away with not paying most of it back via the tax system......inflation will see to that.

To be honest.....most would learn more for free sitting next to someone doing a qualified job you are interested in say an architect, a solicitor, a journalist, an accountant or whatever for three years whilst adding to the practical on the job training picking up new skills some good reading material.....might even have a good chance of getting a job at the firm at the end of it....would have learnt a great deal more and cost a whole lot less. ;)

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Is there a commitment to index the threshold at which the loans become repayable?

No there is not.

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If it was called a tax, they would have to make everyone pay it.

This way it is focused squarely on the young.

My idea - how about a fair tax on ALL graduates.Too often we have watched the rope ladder being hoisted away from those outside the lucky generations.

It would basically be a wealth tax, but in this case the only asset counted as wealth would be a bachelors degree. Given the rate of return on bachelors degrees compared to other asset classes, the wide range of value (e.g. Cambridge Maths vs ex-Poly Media Studies) but without a simple market where prices are established, and the inability to divest oneself of this asset I'm not sure this is the obvious wealth tax to start with.

Edited by Dorkins

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If it was called a tax, they would have to make everyone pay it.

This way it is focused squarely on the young.

My idea - how about a fair tax on ALL graduates.Too often we have watched the rope ladder being hoisted away from those outside the lucky generations.

All for it provided HND graduates are exempt :lol:

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The Telegraph article from Martin Lewis is a cut and paste from an article he published on Money Saving Expert a while back.

Quite why he needs the Telegraphs shilling odd jobbing as a hack, when he pocketed 28 million from the sale of MSE, is beyond me.....hopes of a political career perhaps, or just the vanity of celebrity.

What he deliberately ignores is the simple truth that 21K a year is a piss poor wage, and implies that if you earn more than that you should be grateful.

..._

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hes right to an extent because the loan gets wiped out after 30 years so its not fully repayable.

even if the total debt keeps rising you only have to pay a certain proportion of your income no matter how big the debt is.

so if the debt was a million, youll still only pay a percentage of your income.

in essence its more like a 9% tax above £21000, which youll have to pay for between 0-30 years.

Right but, what if, goverments in the future simply said it wasn't wiped after 30 years but had to be repaid.

Anyone taking out one of these that hasn't considered this possibility, I have a bridge I'd like to sell you..!

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