Student Loans

Will the Government changes in Student Loans be Relevant to me?

Recently the UK government has announced some changes to student loans. These seem to be apolitical action to try to win back student votes but it is worth looking beyond that to see whether they could be relevant to you.
The most recent change is that students will only have to start repaying their loan when they are earning over £25,000 compared to £21,000. There has also been a freezing on fees at the moment. However, the government has said that it will be doing a full review of the student finance system soon so there may be other changes taking place too.

The difficulty with student loans is that they are government led and so that means that changes can occur, unlike with a bank loan when they are legally bound to stick to their own terms and conditions without good warning and changes have to be reasonable. So something that looks great now, may not continue in the future, particularly if the government changes.

The earning threshold change is great news for anyone who is earning or likely to earn within this threshold, they could end up saving a nice chunk of money. Calculations have shown that this change will save a typical student £15,700 over the thirty year repayment term of the loan, but it is hard to know if you are a typical student. It will actually make no difference at all to those earning less than £21,000 and for those very high earners it will mean that although they will still repay their full loan, it will take them longer and so they could end up paying more in interest payments than under the old threshold. However, about three quarters of students do not repay their loans in full and these are the ones that will benefit. So whether this will be beneficial for you will depend on how much you are earning or will be earning in the future.

The fact that University fees are not going to be increased will only affect a few people. It will have a big effect on Universities themselves as they do not have the opportunity of increasing their income per student, although they may be able to make up for this by increasing their intake and their class sizes. With regards to students it will only have an impact on the higher earners that would have paid back the loan in full. They will now have to pay back more, before the loan is fully repaid. Anyone that is not repaying the full loan will pay nothing more than before.

This can be tricky to understand and it is because the word ‘loan’ makes it confusing. Usually with a loan you pay back a fixed amount each month and after the set term it is repaid. A student loan is very different. You pay back a percentage of your salary, once you are earning past the set threshold. Then you only have to make repayments up until thirty years after you have left University and the remaining debt is written off. Many students never repay the debt in full and so any changes to interest rates or tuition fees are irrelevant to them; it would just impact the highest earning students. However, changes to the threshold impacts the lower earners. When the current loan system came in it was promised that the threshold would change with inflation, but the government went back on their word and froze it, which infuriated a lot of people. However, it seems they may now have changed their mind and will be changing the threshold again but it is difficult to know exactly what will happen in the future. They could just be doing it to win political favour as the media seem to think that their poor previous election results were due to students voting against them, but whether this is the reason and was even the reason that they did worse than they expected in the previous election is very hard to know. However, it could mean that student loans will be given priority leading up to the next general election and this could be good news for most students.

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