Student Loans the Changes

With recent articles focusing on student loan changes coming into affect you maybe wondering how will this affect you or your children.

The Interest Rates:

If you are in the pre-2012 group the good news is the interest rate and impacts on repayments will not be affected. The post-2012 and the 2023 intakes are affected. Because RPI used in student loan calculations like other, areas of the economy have been affected by inflation. This has caused the RPI to increase from 1.5% for the 2012 intake to 9% plus 3%. Now the Institute for Fiscal Studies (IFS) is suggesting a cap to reduce the volatility and to keep the interest rate at a manageable level. Now whilst interest rates for the 2023 intake will gain more protection on interest rate fluctuations the main change is the repayments.

The Winners and Losers:

No the changes in student loan repayments makes it so that graduates are more likely to pay their loans back. If you are a learner who graduated on the old pre-2012 system when you graduate at say 21-22 your debt would wipe after 30 years. Now under the new system you will likely pay this off over 40 years or once you reach your early sixties. Now with the rates being capped those earning high graduate salaries with high predicted salary growth think doctors, lawyers, and those in financial roles will benefit from paying the loan back quicker as they would otherwise be paying more in interest over a longer period. Now fields or professions where you earn a lower threshold you would often benefit from paying less early in your career when you are at or under the repayment threshold which would continue to rise as changes to wage averages. Yet with this being frozen more wages that will have been inflated will creep over the threshold rather than stay at or below the mark. Which means paying the loan back, over a longer duration without realistically ever being predicted enough to pay it off completely.

Repayments:

Now the thing to remember here is not to treat the debt like other debts. Martin Lewis covers this in great detail and has highlighted the numerous problems with framing student debt as debt. Whilst it is important to be aware of it what is more crucial is to think of it in relation to your take home pay. Now Martin uses the example of someone earning £37,295 and gives numerous examples of interest rates but highlights as you only repay 9% of anything above 27,295. So thats 9% of £10,000 or £900 per annum regardless of interest rates you repay the exact same amount. Your take home salary per month with this example is £3,108 with 3% on your pension (£93) £19 HMRC pension, £273 NI and £75 on your student loan. That is just less than a family pizza deal a week over a monthly period. Leaving the student with £2,273 a month take home pay which other expenses and living costs would come out of.

Worth Remembering:

Unlike other “Debts” student loans do not affect your credit score in the UK. They do not continue paying if your situation changes or you lose your job. If you are paying any debt off early unless you are earning a significantly high income you are better to focus paying off mortgages, loans or other debts first. So whilst these changes will have an affect and the new loan system will affect learners it is still not going to act as a barrier to going to university however, do look at degree apprenticeships, traineeships or apprenticeships. Often many of these have many of the benefits of degrees without any direct cost to you. It’s your choice be the best you, you can be.

https://www.savethestudent.org/news/student-loan-repayment-changes.html

https://ifs.org.uk/publications/15953

https://www.gov.uk/government/news/fairer-higher-education-system-for-students-and-taxpayers

https://www.moneysavingexpert.com/tax-calculator/

Lockdown Rents for Students

The three lockdowns that the UK has faced have arguably had one of the more long-term impacts on today's youth. Many of them are going to not only be the ones who are facing challenges now but based on the average research timeline following a significant national challenge like the Financial crisis or the present Covid crisis. We will not likely see the real impact for approximately five to ten years.

While my previous articles have focused on farmers' mental health this week, I intend to look at how to support learners. Now yesterday, I was listening to a podcast, MoneyBox looking at significantly how students have been affected by lockdown rents. The investigation found that students are still largely paying excessive rent charges as they cannot live in their rental properties due to government guidance, which aims to reduce the spread of Covid. However, the government advises restricting none essential travel, particularly where individuals can still access their educational material from home. Whilst many argue closing universities was the correct course of action, it should not be at the learner's expense. Now universities and landlords have costs that need covering, and aspects of the maintenance grant would traditionally cover these costs. However, taking particular universities such as those in Cambridgeshire and London, the maintenance loan will not cover the accommodation expense without the injection of funds from part-time work. Now part-time jobs are few and far between due to a decrease in traditional work being available for students and young people. This impasse between the universities costs and the students being unable to use the service leads to increased stress. However, this should not be solely the burden of our youth. Yes, the cost needs to be covered, which is what business relief and support have been designed specifically for. Many initially display a lack of sympathy for students as the maintenance loan is generally seen as being for their accommodation, so some would argue why their accommodation providers should be subsided when that is what the loan is for? My view of this is that as with the MoneyBox guests who suggested using a common form of contract law to frustrate the contract, this is not possible in this case. The reason is although the government have strongly advised against travel to educational sites, they have not outright made it unlawful for students to use their accommodation. This makes the frustration of a contract challenging to argue. However, it still leaves the student paying the bill. Although the present student loan system is not a debt in the traditional sense, additional costs for the accommodation may come from the learner, which must not happen.

A possible solution would be to refund the student the cost of their accommodation which could either be designed to be returned to the student loan company or the student directly. Although some learners will still need support with their education, this solution may not be financially viable from a government perspective. If the money is refunded to the students, they would not be baring the accommodation cost they cannot reasonably use. One area that certainly can be followed is shoring up universities, and landlords should follow the same framework a particular discount plan or refund supported by the Office for Students in a way that covers essential costs for the university and reimburses the students. This week I will be looking at further impacts on learners during the lockdown and, like with this article focusing on particular points, which I will summarise in a Vlog on Thursday.