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twowheelspete

Student loan sell off / buy own debt

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Govnt has announced sale of 2002-2006 student loans.  This covers my loan.  If the government wants rid of the debt that's fine.  However, it is in both tax payers and my interest that I can bid on my own debt.  E.g. if BlackRock offers 88% of outstanding face value then I'll pay 89% and treasury and me both benefit.  

This idea will likely meet opposition from ministers because there is less profit for their friends and employers (e.g. BlackRock, where Osbourne is/was a tea maid).

Regardless I have written to my MP (no reply yet) and called the student loans company (who politely tell me I welcome to pay off the full amount).

What other options are there?  I am finding my life as a cash own less fun as the years go by. 

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33 minutes ago, Craig_ said:

Would it be possible to pay it off using a 0% credit card? At least that way you're not accruing interest.

Fees and interest are the same, they both cost.......doubt many could repay within the 0% special interest free period.;)

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1 hour ago, Errol said:

Best option is to pay off whatever debt you have left. In full and immediately. 

Those who went to university in 2002 have very low interest loans (I think it's just RPI), so it's probably best not to repay any faster than necessary. I'm not sure about the later ones, but even if they are several percent above inflation it's worth considering the likelihood that a balanced portfolio will be higher.

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I've just checked the SLC website.

If the first year of your course started after 1st September 2012 you repay RPI + 3%

 

If you started before September 2012 these are the interest rates:

Year APR(%)
2016/17 1.25
2015/16 0.9
2014/15 1.5
2013/14 1.5
2012/13 1.5
2011/12 1.5
2010/11 1.5
2009/10 0.0
6 March 2009 - 31 August 2009 1.5
6 February 2009 - 5 March 2009 2.0
9 January 2009 - 5 February 2009 2.5
5 December 2008 - 8 January 2009 3.0
1 September 2008 - 4 December 2008 3.8
2007/08 4.8
2006/07 2.4
2005/06 3.2
2004/05 2.6
2003/04 3.1
2002/03 1.3
2001/02 2.3
2000/01 2.6
1999/00 2.1
1998/99 3.5

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The interest rate is indeed low and of course the cash might be useful in the future.  However, I suspect the loan book will likely be sold for 85p on the pound (or less; it will have to be "sufficiently attractive to investors" after all) so will certainly be worth getting shot of, given i don't needing the cash in the near future.

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4 minutes ago, twowheelspete said:

However, I suspect the loan book will likely be sold for 85p on the pound (or less;

I think a lot less. There seem to be figures about that quote anything between 66% and 85% of loans not being repaid in full.

So at worst, only 15% will be paid in full. If you estimated that of the balance, they will average paying off half, that gives you a value of 57% of book value. 

50p in the £ would probably be a decent price for what is effectively a sub prime loan book.

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19 minutes ago, CunningPlan said:

I think a lot less. There seem to be figures about that quote anything between 66% and 85% of loans not being repaid in full.

So at worst, only 15% will be paid in full. If you estimated that of the balance, they will average paying off half, that gives you a value of 57% of book value. 

50p in the £ would probably be a decent price for what is effectively a sub prime loan book.

Isn't it even worse when you consider the present value? These loans don't charge meaningful interest, so it wouldn't be worth paying close to 100% even for a cohort earning £50k or whatever. You'd still be waiting around for several years just to get your money back plus inflation.

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24 minutes ago, CunningPlan said:

I think a lot less. There seem to be figures about that quote anything between 66% and 85% of loans not being repaid in full.

So at worst, only 15% will be paid in full. If you estimated that of the balance, they will average paying off half, that gives you a value of 57% of book value. 

50p in the £ would probably be a decent price for what is effectively a sub prime loan book.

Hmm.. possibly yes, 45p unpaid quoted in FT link below (although it's unclear what exactly this refers to).

UK ministers grapple with problem of unpaid student loans https://www.ft.com/content/13aefac0-fed4-11e4-84b2-00144feabdc0?segmentid=acee4131-99c2-09d3-a635-873e61754ec6

The 2002-2006 book now likely consists of stragglers like me and non-payers. 50p does look decent in that regard.

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I would buy mine back.

if they offer it to the public at 50p to the pound I would happily buy mine back at 85p to the pound 

it won't work like that though. not a great loan book to buy if those who can repay do. 

Just left with the worthless photography degrees loans etc 

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2 hours ago, Errol said:

Best option is to pay off whatever debt you have left. In full and immediately. 

Nonsense (assuming you mean from a personal view point, especially for low cost debt where payments are income contingent).  

If you mean from the tax-payers point of view then yes, I agree. However, if the government insists on offloading these assets at what I'm sure will be an "attractive" rate then I'd rather the money go to my pocket (and then be spent locally) rather than off shore debt factor..

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Aren't these loans written off when you reach 60? Just wondered as i did my degree when i was 40 and graduated in 2011. Not really sure if its worth paying all off if they are going to write it off in 14 years time.

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3 minutes ago, mrdirkles said:

Aren't these loans written off when you reach 60? Just wondered as i did my degree when i was 40 and graduated in 2011. Not really sure if its worth paying all off if they are going to write it off in 14 years time.

Yes, it depends on your circumstances- I am early 30s and still have lots outstanding (due to doing PhD/postdoc), but will pay off by 2020 with the minimum repayments.  There is no way I can stretch repayments to retirement (short of giving up a career I enjoy!) so early repayment would be an attractive option for me, for sure at anything below 90p.

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More sources:

US has >40% deliquency https://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348 (and I suspect UK is higher due to income threshold)

For the UK sell off, https://www.ft.com/content/90db419e-ef9f-11e6-ba01-119a44939bb6 has more detail: there will 5 tranches, and 'about half' is 'expected to be “unrated”' (i.e. junk).

 

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While I'd also take paying off my student loan at 85p in the £ and could do so tomorrow if they offered it. The 60-85% book value is an average of the 'good' and 'bad' debt, so if they offered those of us who would be able to pay now, but will pay off in a few years through PAYE anyway, the opportunity to do so they'd just trash the quality of the loan book.

I don't really understand why they're selling though, as the risk adjusted value of the whole book to a buyer is almost certainly less than the long term income and as the Government can borrow at negligible interest rates, they don't need to sell it to pay for current spending. Especially now Hammond has given up on the deficit targets.

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1 hour ago, jiltedjen said:

I would buy mine back.

if they offer it to the public at 50p to the pound I would happily buy mine back at 85p to the pound 

it won't work like that though. not a great loan book to buy if those who can repay do. 

Just left with the worthless photography degrees loans etc 

Yes the owners of the loans should be offered first refusal on the discounted amount......discount based on own future financial prospects taking into account the value of the degree they purchased....better something than nothing at all.;)

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1 hour ago, jiltedjen said:

I would buy mine back.

if they offer it to the public at 50p to the pound I would happily buy mine back at 85p to the pound 

it won't work like that though. not a great loan book to buy if those who can repay do. 

Just left with the worthless photography degrees loans etc 

Yes.

I have found anecdotal evidence that a 85p repayment offer was considered around 2011 (google Rothschild Project Hero report... I'm not joking about the name!) but rejected on the grounds it is too regressive (people with the cash end up paying >15% less than those without).

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6 minutes ago, Tulip_mania said:

While I'd also take paying off my student loan at 85p in the £ and could do so tomorrow if they offered it. The 60-85% book value is an average of the 'good' and 'bad' debt, so if they offered those of us who would be able to pay now, but will pay off in a few years through PAYE anyway, the opportunity to do so they'd just trash the quality of the loan book.

I don't really understand why they're selling though, as the risk adjusted value of the whole book to a buyer is almost certainly less than the long term income and as the Government can borrow at negligible interest rates, they don't need to sell it to pay for current spending. Especially now Hammond has given up on the deficit targets.

Agreed overall.  However, it's already expected that half of the five tranches will be junk anyway (see FT article above) and given the real interest cap (RPI/base+1%) I'd be impressed if they get significantly more than 85p for the senior tranche.  I think we're only talking about "trashing" the top tranche!

The government subsidises student loans https://www.ifs.org.uk/comms/r94.pdf .  I don't think die hard tories have given up on debt reduction by any means.  To be honest, I am broadly supportive of the loans being unloaded if it's done well (but I guess that won't happen)

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10 minutes ago, twowheelspete said:

The government subsidises student loans https://www.ifs.org.uk/comms/r94.pdf .  I don't think die hard tories have given up on debt reduction by any means.  To be honest, I am broadly supportive of the loans being unloaded if it's done well (but I guess that won't happen)

"the interest payable by the borrower is lower than the interest the government has to pay on its debt (currently determined by HM Treasury to be RPI+2.2%)

From page 18 of the document you linked to, it's only costing the govt money on the basis of bizarre accounting.

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24 minutes ago, Tulip_mania said:

While I'd also take paying off my student loan at 85p in the £ and could do so tomorrow if they offered it. The 60-85% book value is an average of the 'good' and 'bad' debt, so if they offered those of us who would be able to pay now, but will pay off in a few years through PAYE anyway, the opportunity to do so they'd just trash the quality of the loan book.

I don't really understand why they're selling though, as the risk adjusted value of the whole book to a buyer is almost certainly less than the long term income and as the Government can borrow at negligible interest rates, they don't need to sell it to pay for current spending. Especially now Hammond has given up on the deficit targets.

Probably because some palms have been crossed with silver. No doubt if the right firm gets it on the cheap, it will all be within the rules. It's a shame there isn't a public Ethics Committee checking the standards of the Parliamentary Ethics Committee.

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2 minutes ago, Tulip_mania said:

"the interest payable by the borrower is lower than the interest the government has to pay on its debt (currently determined by HM Treasury to be RPI+2.2%)

From page 18 of the document you linked to, it's only costing the govt money on the basis of bizarre accounting.

Ok I accept that wasn't the best link, but feel free to compare UK government 10 year gilt yields to the student loan rates (see post above )....

 

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11 minutes ago, Tulip_mania said:

"the interest payable by the borrower is lower than the interest the government has to pay on its debt (currently determined by HM Treasury to be RPI+2.2%)

From page 18 of the document you linked to, it's only costing the govt money on the basis of bizarre accounting.

10 year gilt yields (last 5 years) https://www.bloomberg.com/quote/GUKG10:IND

Last 5 years of student loan rates:

2016/17 1.25
2015/16 0.9
2014/15 1.5
2013/14 1.5
2012/13 1.5
2011/12 1.5

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36 minutes ago, Tulip_mania said:

"the interest payable by the borrower is lower than the interest the government has to pay on its debt (currently determined by HM Treasury to be RPI+2.2%)

From page 18 of the document you linked to, it's only costing the govt money on the basis of bizarre accounting.

Just for my own curiosity I did more investigation.  Took 30 year gilts as this is a better reflection of the lifetime of the loans.  Source data: https://uk.investing.com/rates-bonds/uk-30-year-bond-yield-historical-data monthly back to year 2000 and student loans rates from the table above (dates rounded to nearest month).

 

 

slcratevsgilt.png

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