Financing Your Future: Student Loans
- 23rd July 2018
- Posted by: Loanable
- Category: Resources
There always is a debate about good debt and bad debt; in the end debt is debt. However, if by going into debt you can increase your value, and earn more money, then isn’t that debt good.
The fact is that if you want to go to university and seek out that higher education, you need to find a way to fund it. Tuition, books, and all the other costs associated with going to university is, as we will see, not a cheap venture.
However, for the cities that have universities in their midsts, it means big money, students and universities equal revenue. Cities with one or more universities for a period of the year have an increase in their population, which means an increase in those spending money.
Money is spent on rent for housing, food, transportation, and also in the pubs and social places where students like to congregate.
Some cities such as Liverpool and Manchester, have student populations of 70,000 to 100,000, and many of these students stay on after graduation.
Cost of a University Degree and is it Value for Money
Currently if you wish to attend a university in the UK, universities can charge £9,250 as a maximum for tuition fees.
As many university degrees take three (3) years to complete, this can add-up to over £27,000 in total for a uni degree.
However, going to university can cost much more than just tuition. There is the cost of books, transportation, accommodations, food, and let us not forget the social aspects and costs of going out now and then.
In the end it can easily cost £35,000 or more in total.
So how does a young person afford to go to university?
Loans, student loans. It is that or have the bank of mum and dad fund the degree.
The government provides loans to students, and currently there are £100 billion, in student loans! That’s billion.
With all this debt out there in student loans, it now begs the question, is getting a university degree worth it? Is there value in the money spent, or borrowed?
Studies show that yes, university graduates do in the end overall earn more money than those that do not attend university.
Naturally, there are different studies citing different facts, but the majority state uni graduates do earn more over time.
So it would seem there is value for money, or debt, in the instance of taking out student loans.
Paying Your Student Loans
If student loans were not already value for money, or good debt, the repayment structure or how payments are calculated to repay the loans, is icing on the debt cake.
Here in the UK the threshold of earnings before you begin making payments to your student loans is now £25,000 per year.
This means that until you earn over £25,000 a year, you are not obligated to repay the loans.
Not a bad deal.
Even then when you do earn over £25,000 annually, you only pay back 9% of your earnings above the £25k mark.
Some examples may be this:
You earn £27,000 a year, which is £2,000 over the repayment threshold.
9% of £2,000 is £180, which makes your monthly student loan payments £15.
If you were to earn £30,000 a year, or £5,000 above the threshold of £25,000, 9% of £5,000 is £450, or monthly payments of £37.50.
It sounds like a win-win situation, and a pretty sweet deal, however if you look closer at this, it is not all wine and roses.
If a uni graduate has £20,000 in student loans, and we will say they earn £30,000 a year, which means they pay back £450 a year, before we even account for interest on the loans, which is just over 6%, it will take just over 533 months, or over 44 years to repay the loans.
In reality, the student loans will be written off 30 years after the first April after you graduate (in England and Wales). It’s 35 years in Scotland.
Which doesn’t sound too bad, but that means for a large portion of your life, you are in debt.
Are Student Loans Mis-sold?
With all the news about mis-selling PPI/Payment Protection Insurance, and the mis-selling of packaged bank accounts, why not toss student loans in the mis-selling pot.
There are those that feel student loans are mis-sold.
Students are not properly informed about the interest rates and how they can change, and also the full repayment structure, and that they will be in debt for what could be the rest of their working lives.
So who does advise students on as to if they should take out student loans or not?
In some instances it is a matter of the student’s parents saying if you want to go to university, go but we cannot afford to send you. Which is a passive way of saying, take out loans.
Then there are teachers, professors, instructors, advisors, all of which may be knowledgable in their respective fields, but they are not financial advisors. They are not licensed by the FCA/Financial Conduct Authority, who regulate credit brokers, banks, lenders, insurers, and just about anything to do with personal finances.
Were the prospective and future graduates and debtors advised of the current 6% interest rate on student loans, or that they may be paying the loans off for the rest of their lives (the next 30+ years), or that while the loans are not reported to the credit bureaus, the monthly payments will be held against them when they apply for a mortgage.
So in financing your future through the use of student loans you need to be aware of a few things:
* On the surface they seem to be a good deal
* The repayment structure is easy to live with
* You will be paying the loans off for a long, long, possibly long, time
However, when you look at alternatives, there are not many.
Private loans would need to be repaid immediately, and they may not carry as low an interest rate.
Who has that kind of cash to just pay for a uni education.
And in the end, university graduates do earn more money.
When they say financing your future, they mean the long haul future.