New student loan rules will see graduates pay them back in their 60s
Maria Gregory had always dreamed of studying medicine at university because she wanted to make a career out of helping others.
But a recent shake-up in student funding – which will see graduates paying off their loans sooner and longer – has her wondering if she should even go to college.
Seventeen-year-old Maria faces a decision that could leave her in debt well into her 60s.
Plans up in the air: A shake-up in student finances has left Maria Gregory (pictured), who wants to study medicine, wondering if she can afford the cost of college
It’s no wonder, then, that the schoolgirl now finds the prospect of a paid apprenticeship in engineering more appealing.
Maria, from Portsmouth, says: “One of the biggest benefits of an apprenticeship is the idea of not having a loan to repay. If I did medicine, it’s five to seven years of study, it’s long and a lot of money.
Student funding is undergoing its biggest overhaul in more than a decade.
The threshold at which graduates will start repaying their loan will be reduced from £27,295 to £25,000 under the plans.
And the repayment period will increase from 30 to 40 years, meaning a graduate could repay the loan after their 60th birthday. To mitigate the fallout, the interest rate on the debt will be lowered.
Currently, the highest interest rate on student loans is inflation measured by the Retail Price Index (RPI) plus 3%. Under the new system – which could come into effect for the 2022/23 academic year – graduates will only have to pay interest to the RPI.
But it will disproportionately benefit higher earning graduates such as bankers and lawyers – while nurses and arts students will have to pay more.
Inflation is also skyrocketing, with the current RPI rate at 7.8%.
Currently, a graduate with a starting salary of £25,000 would pay off £45,000 of a £50,000 debt until it is written off.
However, the overhaul means the same person will repay almost double that – £80,000 – according to Hargreaves Lansdown estimates. And someone with a starting salary of £30,000 will be even worse off.
The threshold at which graduates will start repaying their loan will be reduced from £27,295 to £25,000 and the repayment period has been extended from 30 to 40 years
The amount they pay back over their lifetime is currently £65,000. But that will rise to £105,000.
Meanwhile, a graduate with £50,000 will only pay £70,000 under the new system. Previously they would have paid £120,000.
This is because the reduced interest rate will help them clear the debt faster.
The changes mean students may need to think more carefully about what they choose to study and whether it will provide the return on investment a degree has always promised.
Certainly for Lucy Hayes, a nursing graduate, it would be harder to justify the fees if she headed off to college now.
Lucy, 35, has just graduated from the University of Birmingham and can expect a starting salary of £25,655 a year. If the new system was already in place, she would pay off her student loan immediately.
And over her lifetime, she would end up paying more than an investment banker, which can attract starting salaries of around £50,000.
On top of that, Lucy already has student debt from her first psychology degree. She says: ‘I would have considered the changes very carefully when deciding whether to go back to school.
“When you already have a loan to pay off, you’re going to think a lot more seriously about whether to take out another one.”
England’s Royal College of Nursing (RCN) has expressed concern over the upheaval. RCN Director Patricia Marquis said: ‘This is a huge blow for anyone wanting to enter the nursing profession. With thousands of nursing vacancies in the NHS in England alone, the government must implement plans to incentivize female nursing students, not deter them.
Degrees of indebtedness: Jude Stark has his eyes set on a history degree
Former sixth form Jude Stark’s plans for higher education are on hold as he carefully considers the impact of new loans.
The 17-year-old has his sights set on a history degree, but he’s worried about how much debt he’s going into.
Jude, from York, says: “That’s a lot of money. By the time you start paying it back, you’re at an age where you could buy a house. But I still really think what you get from college is worth it in the long run.
Schoolgirl Poppy Saynor aspires to study history and politics at the University of Sheffield. After graduating, she can expect an average starting salary of around £25,000 a year.
And she already has her sights set on a career in frontline politics or public service.
Under the current student loan system, Poppy expected to pay off £45,000 of her debt and interest until it was forgiven after 30 years. But the new rules mean she will start paying back the loan sooner and for longer.
She will now pay around £80,000 over her lifetime, almost double what she would pay now. Yet for Poppy, from Hertfordshire, that still isn’t enough to deter her from going to college.
“It’s a very unfair system. But it will just feel like a tax once I start working,” she says. “I can see why other people my age might find it overwhelming.”
Poppy has also noticed that students are turning away from arts subjects to courses that could lead to more lucrative careers.
She says: “My English Literature class has about eight students while there are more than 20 people in my biology promotion, for example.
So what, if anything, can parents do to mitigate the damage from larger loans? It can be tempting to help your children avoid debt by paying fees up front.
In the past, only about one in four graduates would have repaid their loan in full. But according to the Institute for Fiscal Studies (IFS), that figure will rise to around 60% under the new system.
In the past, only about one in four graduates would have repaid the loans in full. But according to the Institute for Fiscal Studies, that figure will rise to around 60% under the new system.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Rents tend to be much higher than mortgages at the moment.
“If they try to put money aside for a deposit, they could end up with less disposable income than if they paid off their student loan. So you might have preferred to help them on the property ladder.
Laura Suter of investment firm AJ Bell adds: “If they think they will make enough money in the future to save for their own property, it may be worth paying off the debt now.” Forty years is a long time to have a debt hanging over you.
If parents do not have a lump sum available for student loans, some may consider freeing up money from their property by repaying or taking out a principal release loan.
But Ms Coles says: ‘Technically you might be able to borrow at a lower rate than the RPI, so there’s less interest to pay.’ However, this places a greater financial burden on parents. This could mean paying a larger mortgage for longer, which could impact their ability to focus on other priorities later in life, such as pension contributions.
- The actual amount repaid will vary depending on loan size, inflation, working life, and salary inflation.
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