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Student Loans the Changes
How will student loan changes affect yours or your children. In this article I cover take home pay as the core focus moving away from the discussion on interest rates. The importance is how it affects you and your loved ones budgets and helping you explore this on a monthly basis rather than abstract figures.
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