UK University Student loans from 2012 – some numbers.

When the ‘soak-a-student’ policy was first announced no one had a proper grip of the issues.

The main point to bear in mind is that this is totally different to all conventional loans. Most will not be paid off in full because the debt cancels 30 years after graduation. It might be better to think of the student loan as a graduate income tax. You will pay 9% income tax more than a non-graduate on everything you earn above £21,000 per annum. Earn £33,000 (lucky thing!) then the bill will be £90 each month. And now it doesn’t start to sound so bad.

 If you are like me then you will probably be thinking about an ever-increasing loan and the impending bankruptcy. You’ll have a mental picture of a disastrous credit rating, house repossessions and either the police or a couple of illiterate heavies knocking your front door down. And this is the impression we all had when the policy was first announced, no wonder there were so many protests going on.

Some points:

  1. If a student’s household income is below £42,600 a year, then some of their loan entitlement is replaced with a non-repayable grant.  Parents receiving benefits are advised to check how they are affected when a son/daughter goes off to University. The £21,000 p.a. threshold for 2016 will increase each year by the ‘general wage inflation’.
  2. In 2011 the General wage inflation was below 2%.
  3. For the tax year 2017-2018, expect the threshold to increase to about £21,400, so the wage deductions will change.
  4. It is normal for graduates in employment to have an annual rise above 2%.
  5. The 9% payback starts at the beginning of the tax year i.e. April 2016 – 2017.
  6. Earn £18,000 in this year, i.e. £1,000 below the threshold; nothing will be taken out of your wage.
  7. Earn £25,000, i.e. £4,000 above the threshold; pay £30 out of your wage each month.
  8. Earn £40,000, i.e. £19,000 above the threshold, have £143 taken out of your wage each month.
  9. There are very few who will earn above £40,000 p.a., but those that do may well finish paying off the full loan before the 30-year period expires.
  10. Most graduates will not pay their entire loan back, after paying your student loan for 30 years the debt is cancelled.
  11. The student loan debt will increase each year by between the RPI and RPI + 3%, in 2011 the Retail Price Index varied from 5.1 to 5.6%.

So, you have a University debt, which increases at an alarming rate, but then it is unlikely that you will ever pay it off. The debt will not affect your credit rating. The main worry, during the 30year payback time, is that Governments can change the Terms and Conditions!

This information goes a long way to calm fears of debt but I must still encourage you to check out my website and seek out degrees that lead to a better chance of employment at graduate-level wages.

 

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