The Full English – Student Loans Review

What am I buggering on about this week?

Lately I’ve been watching lots of finance videos/ podcasts. One of my guilty pleasures is The Dave Ramsey Show. If you haven’t seen it, it’s a highly successful call-in show based in the US, where Dave dishes out financial and often plain common-sense advice, which is syndicated and streamed on YouTube. It’s also sometimes akin to Jeremy Kyle, and I watch with morbid curiosity. Dave, being in the US, takes a fairly aggressive approach towards student loans as part of a drive to get rid of debt (1, 2):

But here across the pond we have a very different student loans structure. I did have to take a loan for my education, but luckily it was Plan 1. The current interest rate (1.75%) is less than the RPI. In practical terms my debt is reducing in value even if I don’t pay it off. I also had a maintenance grant with no expectation of repayment. These have since been scrapped. The student loans system in the UK functions more like a graduate tax. You only pay once you earn over a certain threshold (dependent on your plan), and then you pay a nine percent of those earnings. There’s lots of useful resources to guide you on this, including the government website (3, 4, 5). Another podcast I’m enjoying, Meaningful Money, explains it really well (6):

I’m very thankful I’m not on Plan 2, the current scheme. It’s significantly more painful than my scheme. The interest rates are significantly higher (3):

Student Loan rates

Six bloody percent! And because of the structure of it you only pay 9% of your earnings over the threshold, so your actual repayments are fractional. It just sits there, accruing until you reach the 30-year post-graduating threshold when it gets wiped. The only people who stand a chance of clearing it are the higher earners (>£50k), but if you’re just over that mark it will act as a continuous drain on your monthly takehome pay.

Now cleverer bods than I have clocked the coming hole in government funds. Hence the recently commissioned government review. It reported last week, and the findings have prompted much discussion (7, 8). They include such progressive ideas as reducing the maximum from £9,250 to £7,500, and reintroducing means-tested grants. They counteract this by bringing the repayment threshold down, and extending out the cancellation deadline to 40 years. The net result is that the highest earners will still pay more than the rest but less than under the current system. Middle earners will pay more, and more will pay off in full. Lowest earners are better off (9, 10).

Lifetime student loan

The whole system seems ponderous, and designed to confuse. The treasury would be happier with the proposed scheme (one suspects), as more people will pay it off in full. Ultimately these are all by-products of the attempt to commercialise higher education under the guise of widening access and equal opportunities. Beware of greeks bearing gifts.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://www.daveramsey.com/blog/how-to-pay-off-student-loans-quickly
  2. https://youtu.be/CodCjMrYB1Y
  3. https://www.gov.uk/repaying-your-student-loan/what-you-pay
  4. https://www.moneyadviceservice.org.uk/en/articles/repaying-student-loans
  5. https://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/
  6. https://youtu.be/08NVnDG7UlY
  7. https://www.bbc.co.uk/news/education-48451474
  8. https://inews.co.uk/news/education/slash-tuition-fees-and-student-loans-interest-government-review-to-recommend/
  9. https://www.bbc.co.uk/news/education-48459910
  10. https://www.thetimes.co.uk/article/cut-university-tuition-fees-to-7-500-and-slash-interest-on-student-loans-review-n8lbkhz3s
  11. https://www.thetimes.co.uk/article/newcomer-vanguard-knocks-hargreaves-off-the-top-spot-g08jx50w9
  12. https://www.telegraph.co.uk/investing/funds/blackrock-launches-rival-vanguard-lifestrategy-funds-should/
  13. https://www.bbc.co.uk/news/business-48433692
  14. https://www.theguardian.com/environment/2019/may/30/renewable-energy-jobs-in-uk-plunge-by-a-third
  15. https://www.theguardian.com/money/2019/may/31/uk-house-prices-slump-as-confidence-remains-subdued-says-survey
  16. https://www.thisismoney.co.uk/money/mortgageshome/article-7090137/UK-house-price-growth-falls-0-2-consumer-confidence-remains-subdued.html
  17. https://www.theguardian.com/money/2019/jun/03/neil-woodford-blocks-investors-from-pulling-cash-from-flagship-fund
  18. https://www.msn.com/en-gb/news/world/no-way-to-stop-it-millions-of-pigs-culled-across-asia-as-swine-fever-spreads/ar-AACtx3M?ocid=spartanntp
  19. https://www.bbc.co.uk/news/business-48553193
  20. https://www.thisismoney.co.uk/money/investing/article-7102797/Casual-investors-blocked-investing-10-P2P-firms.html
  21. https://www.wired.co.uk/article/uk-coal-power-energy-renewables-new-record
  22. https://www.independent.co.uk/news/uk/home-news/trump-uk-visit-penis-stansted-airport-protest-climate-change-real-essex-a8941271.html
  23. https://www.theguardian.com/business/nils-pratley-on-finance/2019/jun/06/nicky-morgan-must-ask-questions-of-regulator-after-neil-woodford-saga
  24. https://citywire.co.uk/funds-insider/news/david-stevenson-beware-the-risk-of-uk-stock-market-bias/a1232783
  25. https://monevator.com/life-expectancy-for-couples/
  26. https://monevator.com/blackrock-mymap-fund-of-funds/
  27. https://monevator.com/index-funds-versus-superstar-investors/
  28. https://www.ukvalueinvestor.com/2019/06/sainsburys-discounted-share-price.html/
  29. https://theescapeartist.me/2019/06/05/the-inestimable-advantages-of-paying-yourself-first/
  30. http://www.retirementinvestingtoday.com/2019/06/back-to-powerful-fi.html
  31. https://cashflowcop.com/should-i-charge-my-child-rent-the-pros-and-cons/
  32. https://cashflowcop.com/the-morning-brew-vs-finimize-financial-news-summarised-for-busy-people/
  33. http://earlyretirementextreme.com/the-danger-of-lifestyle-consumption.html
  34. http://diyinvestoruk.blogspot.com/2019/06/tr-property-final-results.html
  35. http://diyinvestoruk.blogspot.com/2019/05/capital-gearing-final-results.html
  36. http://quietlysaving.co.uk/2019/06/07/investing-mistakes/
  37. http://quietlysaving.co.uk/2019/06/01/may-2019-other-updates/
  38. http://thefirestarter.co.uk/caravan-psychology-and-economics-101/
  39. https://ditchthecave.com/break-the-routine/
  40. https://drfire.co.uk/may-2019-report/
  41. http://fiukmoney.co.uk/may-19-net-worth-and-monthly-update-10-504531-69688/
  42. https://thesavingninja.com/im-now-a-property-investor-savings-report-11/
  43. https://littlemissfire.com/the-importance-of-side-hustle-diversification/
  44. https://awaytoless.com/monthly-spending-may-2019/
  45. https://gentlemansfamilyfinances.wordpress.com/2019/05/31/month-end-accounts-may-2019/
  46. https://gentlemansfamilyfinances.wordpress.com/2019/06/06/whats-woodford-good-for/
  47. https://gentlemansfamilyfinances.wordpress.com/2019/06/05/waspi-hypocrisy/
  48. https://gentlemansfamilyfinances.wordpress.com/2019/06/07/green-money-greencoat-uk-wind-share-offer-update/
  49. https://financeyourfire.com/2019/06/04/portfolio-update-may-2019/
  50. https://pursuefire.com/monthly-each-way-betting-report-11-may/
  51. https://obviousinvestor.com/p2p-lending-portfolio-update-for-may-2019/
  52. https://www.iretiredyoung.net/single-post/2019/06/01/Early-Retirement-Couple—Part-2
  53. https://www.iretiredyoung.net/single-post/2019/06/07/Early-retirement-costs-targets—May-2019
  54. https://asimplelifewithsam.com/2019/06/07/may-spending/
  55. https://simplelivingsomerset.wordpress.com/2019/06/03/an-engineering-cameo-at-the-royal-bath-west-show/
  56. https://indeedably.com/gone-awry/
  57. https://indeedably.com/midlife-crisis/
  58. https://lovelygreens.com/when-to-harvest-potatoes/
  59. https://twothirstygardeners.co.uk/2019/05/wild-bees-natural-hive-attract-allotment-gardeners/
  60. https://twothirstygardeners.co.uk/2019/05/wormwood-making-vermouth-vermut-el-bandarra/
  61. https://agentsoffield.com/2019/05/26/first-harvest/
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4 thoughts on “The Full English – Student Loans Review

  1. I don’t understand why our government doesn’t introduce a proper graduate tax and do away with “student loans” completely. As it is, both the current system and the proposed changes hurt low- and middle-incomes more than high-earners.

    Those with extremely wealthy parents currently have the option of just paying it all off upfront, and then not being subject to the high interest rates and extra tax.

    Obviously our current system is still much better than the US system. The fact that loans are income-based and are wiped out after 25/30/40 years (depending on when the student started university) is much better. However, there is still room for improvement!

    Liked by 1 person

    1. Hi Dr Fire!
      I think the key here is the word ‘tax’, and any government seen to be introducing a new one will watch it’s popularity decline.
      I think the Plan 1 scheme was actually pretty good; it was significantly better than the US system and supported lower-incomes. Middle incomes suffered, but then it will prevent eejits applying for non-courses for ‘the uni experience’.
      Still plenty of room for improvement, but all the while people are going to uni to get a taste of freedom we’re going to struggle.
      Cheers, The Shrink

      Like

  2. Couple of major problems with a graduate tax, in addition to the obvious presentational one of introducing a new, er, tax:
    1. A graduate tax would leave a massive black hole in the public finances in the period between replacing tuition fee (and maintenance?) loans with grants (which would be the necessary first step), and the time at which students on the new system graduated and began paying their higher graduate tax. It would likely take decades to reach equilibrium.
    2. In the current student loans system, borrowers who move abroad remain eligible to pay off their loan (the Student Loans Company/HMRC aren’t that adept at collecting it, but a decent proportion of repayments do come from abroad). This wouldn’t be possible with a tax, and it would provide a massive incentive for graduates to leave the country – as if they didn’t need another one at the moment…

    Liked by 1 person

  3. I’m lucky that there were no tuition fees when I went to uni and I graduated with a small loan of only a couple of grand. I can’t imagine being saddled with today’s students’ debts.

    Thanks for the shout out – I’m sure it won’t be the last investing mistake I’ll make (just being realistic!)

    Liked by 1 person

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