The potential for long term debt
The new student loan regime – the potential for long
term debt
You can’t open a newspaper at the moment without seeing a headline about the rise
in university tuition fees and the impact this will have on student debt. With far more
universities than the Government originally anticipated planning to charge the
maximum ÂŁ9,000 per annum fees, thousands of students are going to finish their
education with significant levels of debt.
The new student loan regime is due to come into force in 2012. Very simply, here’s
how it will work:
• Repayments don’t start until someone is earning £21,000 per annum. They then
pay 9% of any earnings over that amount – so a graduate earning £25,000 will
pay ÂŁ30 per month; one earning ÂŁ40,000 will pay ÂŁ142.50 per month
• Interest is charged at RPI, or RPI plus 3%, depending on earnings
• If the loan isn’t repaid after 30 years, it’s written off
Initially, that sounds perfectly acceptable – ÂŁ25,000 is a reasonable starting level for a
graduate, and £30 per month doesn’t sound much. The problem is, there’s a very real
potential for the debt to increase, even if the graduate makes the contractual
payments.
Let’s say someone leaves university with £40,000 of debt. If they’re earning £40,000
per annum, their repayments will be the ÂŁ142.50 per month mentioned above. But if
inflation is 3%, the graduate will be paying interest at 6%. So on ÂŁ40,000 of debt
they’ll be paying £2,400 a year, which means the debt will be increasing at £57.50 per
month.
It’s important that you understand these figures if you are planning to help your
children through university, or if you simply want to make sure that they are as well
informed as possible. Despite the warm words of the Government, the BBC has
estimated that some graduates could be paying back over ÂŁ80,000 on their student
loans – and for many, the simple fact is that the loan will never be repaid and will turn
into a graduate tax, payable for thirty years.
Contact us now, and we’ll be happy to discuss the implications of these new proposals
with you.
The new student loan regime is due to come into force in 2012. Very simply, here’show it will work:
• Repayments don’t start until someone is earning £21,000 per annum. They thenpay 9% of any earnings over that amount – so a graduate earning £25,000 willpay £30 per month; one earning £40,000 will pay £142.50 per month
•Interest is charged at RPI, or RPI plus 3%, depending on earnings
• If the loan isn’t repaid after 30 years, it’s written off. Initially, that sounds perfectly acceptable – ÂŁ25,000 is a reasonable starting level for agraduate, and ÂŁ30 per month doesn’t sound much. The problem is, there’s a very real potential for the debt to increase, even if the graduate makes the contractual payments.
Let’s say someone leaves university with £40,000 of debt. If they’re earning £40,000per annum, their repayments will be the £142.50 per month mentioned above. But ifinflation is 3%, the graduate will be paying interest at 6%. So on £40,000 of debt they’ll be paying £2,400 a year, which means the debt will be increasing at £57.50 per month. It’s important that you understand these figures if you are planning to help your children through university, or if you simply want to make sure that they are as well informed as possible.
Despite the warm words of the Government, the BBC has estimated that some graduates could be paying back over £80,000 on their student loans – and for many, the simple fact is that the loan will never be repaid and will turn into a graduate tax, payable for thirty years.
What do you think about this? We’d love to see your comments.
Â
