Student loan repayment penalties
Discussion
I've been hearing this on the news this morning, the government is proposing to charge students extra who wish to make early repayments or even completely clear their student loans early.
Is this another way of 'taxing' those that earn more or is it fair that those who earn more should pay extra if they wish to clear their loans early?
http://www.bbc.co.uk/news/education-14836202
Early repayment penalties occur in a lot of loan scenarios.
It would apply to so few graduates, let's be honest, most will leave and still struggle to find a job in Tesco while believing they are due a city job paying £40k because they went to Uni.
The few that it applies to will be the type who justifies further learning, has a defined career path or is absolutely dedicated to furthering themselves and University was a stepping stone toward a long term goal. They are the type that will want to rid themselves of the student loan as an acomplishment.
And fair play to them.
Organisations that loan money make their business possible with the promise of long term future repayments with an interest baring element. That's how the business is funded. Thats how they get a percentage return.
If loans are repaid early, the lending organisation may not recoup the costs involved in setting up the loan.
As the government has probbaly repackaged these loans and sold them on as a future vehicle for providing an income, they probably dont want them paid off early as the lack of future interest earnings probably means the loans will run at a net loss, which the tax payer would have to cover.
There has to be a better way though, it really sticks.
If loans are repaid early, the lending organisation may not recoup the costs involved in setting up the loan.
As the government has probbaly repackaged these loans and sold them on as a future vehicle for providing an income, they probably dont want them paid off early as the lack of future interest earnings probably means the loans will run at a net loss, which the tax payer would have to cover.
There has to be a better way though, it really sticks.
bob1179 said:
Is this another way of 'taxing' those that earn more or is it fair that those who earn more should pay extra if they wish to clear their loans early?
Looking at that article, they make 3% more out of higher earners if they don't pay the loans back early. What a stupid regressive 'tax'.I can't see why anyone would be in a hurry to pay back their student loans. It's pretty much the cheapest money you'll ever borrow and I've known several people have long drawn out arguments with the SLC after they have accepted additional payments and then "forgotten" they ever happened.
Mine is happily ticking away every month and I'm happy to leave it to it.
Mine is happily ticking away every month and I'm happy to leave it to it.
KaraK said:
I can't see why anyone would be in a hurry to pay back their student loans. It was pretty much the cheapest money you'll ever borrow and I've known several people have long drawn out arguments with the SLC after they have accepted additional payments and then "forgotten" they ever happened.
Mine is happily ticking away every month and I'm happy to leave it to it.
EFA.Mine is happily ticking away every month and I'm happy to leave it to it.
You may wish to check out the commercial loan rates students starting in 2012 will be charged on their loans.
youngsyr said:
You may wish to check out the commercial loan rates students starting in 2012 will be charged on their loans.
It's only RPI + 3%. Given that the minimum payment is only 9% above £21,000 earnings and it gets written off after 30 years it's still easily the best loan you'll ever get. http://www.moneysavingexpert.com/family/student-lo...
Prof Prolapse said:
youngsyr said:
You may wish to check out the commercial loan rates students starting in 2012 will be charged on their loans.
It's only RPI + 3%. Given that the minimum payment is only 9% above £21,000 earnings and it gets written off after 30 years it's still easily the best loan you'll ever get. http://www.moneysavingexpert.com/family/student-lo...
If you think that's cheap then remind me never to ask you for financial advice!
Cheapest loan you'll ever get?! You may wish to consider the cheaper loans that are available on the very same website you linked!
http://www.moneysavingexpert.com/cards/?tab=2
Edited by youngsyr on Friday 9th September 13:53
KaraK said:
I can't see why anyone would be in a hurry to pay back their student loans. It's pretty much the cheapest money you'll ever borrow and I've known several people have long drawn out arguments with the SLC after they have accepted additional payments and then "forgotten" they ever happened.
Mine is happily ticking away every month and I'm happy to leave it to it.
Because presently I am losing £400 a month of my net salary so it is going to be a nice weight or pay rise when it's gone. Equivalent to another 10k...Mine is happily ticking away every month and I'm happy to leave it to it.
youngsyr said:
Only RPI + 3%?!! Cheap as chips!! You do realise that's currently 8% for a loan where the repayments are deducted at source from someone's legally declarable income!
If you think that's cheap then remind me never to ask you for financial advice!
Cheapest loan you'll ever get?! You may wish to consider the cheaper loans that are available on the very same website you linked!
http://www.moneysavingexpert.com/cards/?tab=2
The payments are only taken on 8% of your income over £21,000. I.e. £80 a year, or £6 a month if you earn £22,000. If you think that's cheap then remind me never to ask you for financial advice!
Cheapest loan you'll ever get?! You may wish to consider the cheaper loans that are available on the very same website you linked!
http://www.moneysavingexpert.com/cards/?tab=2
If it's not paid for within 30 years (which a significant number won't be at such a low repayment) then it's written off by the state.
It's also not secured against your home and the repayments stop as soon as you stop earning below the £21,000 threshold. If you lost your job for example.
Also there's not a student out there who can get a better rate than 8% on a loan of £20,000 with no job and the chance they will (perhaps ever) get a job to pay it off in the future.
Best loan you'll ever have. Even if it is more expensive than it used to be.
Edited by Prof Prolapse on Friday 9th September 22:00
Prof Prolapse said:
Best loan you'll ever have.
... if you never earn more than £22k. 
Most students are slightly more ambitious than that though and many would quite easily be able to get a lower rate unsecured loan from a high street bank the moment they graduate than what they'd be paying on their student loan.
youngsyr said:
Prof Prolapse said:
Best loan you'll ever have.
... if you never earn more than £22k. Most students are slightly more ambitious than that though and many would quite easily be able to get a lower rate unsecured loan from a high street bank the moment they graduate than what they'd be paying on their student loan.
ds chose RPI when they're moving everything else to CPI. 0a said:
youngsyr said:
Prof Prolapse said:
Best loan you'll ever have.
... if you never earn more than £22k. Most students are slightly more ambitious than that though and many would quite easily be able to get a lower rate unsecured loan from a high street bank the moment they graduate than what they'd be paying on their student loan.
I know what you're saying youngsyr, but as the chap above says, the flexibility on payments, lack of pressure on repayments and the fact it requires no credit history (and doesn't adversely affect credit history should it be written off) really does make up for the rate.
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