Student Loans – Rising interest rates and changing thresholds

Around about three years ago I wrote a blog article about student loans and whether it was appropriate, as parents or grandparents maybe, to help toward our beloved children’s student fees and accommodation costs etc, with the conclusion being that the answer was (as always, I here you say) “it depends”.

The reason for the ambiguous conclusion was that it depended upon whether you expected your prodigy to be a big earner once leaving University, or whether they would have a more modest income.

My prompt at the time to write the article was my own deliberations given my eldest was about to dive in to a three-year period of university life, which I’m told included a little bit of education too.

Three years on and she’s about to come out the other end, more rounded, wiser and adult in her outlook on life and hopefully with a shiny piece of paper to show for the £50,000 of debt in her back pocket (you can tell what my decision was).

But was my decision in the end based upon whether I expect her to have good earnings potential? In the end no, it was because I started to view the whole Student Debt thing in a slightly different way. To view it not as a lump sum of debt, but to view the repayment basis as a contribution toward her education which for most, and I’m saying this without the aid of a crystal ball, will never total the entire amount owed before the point where the slate is wiped clean around 30 years after graduation, so around age 52. If the earnings never exceed a threshold then there is nothing to pay at all. How annoying would that be for the parent coughing up 50k to then find their child earns less than would have triggered a repayment!?

There has been huge media attention over the past year or so, along with politicians vying for the student vote, but let’s ignore this and look at the facts because for most students the £50,000 of debt is a meaningless figure. What matters is how much they repay.

So when do you start paying?

The Prime Minister announced in October 2017 that the student loan repayment threshold would increase from £21,000 to £25,000 in April 2018 and that tuition fees are to be frozen at a maximum of £9,250 until 2019.

So this means that from the April of the year after graduation you must earn over £25,000 per annum, so £2,083.33 gross per month, before you will have to start paying a penny toward your loan. If you do earn over this amount then you pay a contribution toward the outstanding debt of 9% of that which you earn over this figure.

A couple of examples:

If you earn £26,676 (which is the average weekly earnings Feb 2018, source ONS) you will pay £12.57 per month (£26,676 – £25,000 = £1,676 @ 9% = £150.87 / 12 = £12.57).

If you earn £36,279 (the peak earnings of the average graduate based on ONS data July – Sept 2017, reached at age 48), what do you repay? £84.59 per month.

Clearly the more you earn as a post graduate the more you contribute back into the system that helped you get to that position in the first place. Seems reasonable to me.

Using the words of Martin Lewis, “The system is, in reality, a graduate contribution, designed so that, in the main, those who gain the most financially out of university contribute the most.”

Those that go on to earn huge sums will likely pay off their debt within the 30 years, some might suggest it is a proportionate approach to the system.

Finally, to clarify, the contribution to the student loan is calculated on gross income, taken at source by the employer, but deducted from net of income tax and NI income.

If you have a child or grandchild entering higher education and you’re thinking of helping them, talk to us, we might have some better savings solutions for you.


Mark Ireland Chartered ALIBF


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