Is Your Student Loan Growing By £1,800 A Year?
The Debrief: This guy was so shocked when he realised how much interest he was being charged on his student loan that he wrote to his MP. Do you know how your student loan works?
A letter has gone viral. It was written by Simon Crowther, a recent graduate, and addressed to his local MP, Vernon Coaker. It’s about his student loan.
In the letter, which includes a screenshot of his statement from the Student Loans Company, Simon tells of how his student loan grew by more than £1,800 in the year after he finished university. He incurred interest of as much as £180 a month.
The point that he makes is that he feels neither he nor his peers understood what they were signing up for when they took out to student loans to fund their further education and pay tuition fees. He said ‘we feel we have been cheated by a government who encouraged many of us to undertake higher education, despite trebling the cost of attending university.’
He continued: ‘I was still in sixth form at school when I agreed to the student loan. I had no experience of loans, credit cards or mortgages. Like all the other thousands of students in the UK, we trusted the government that the interest rate would remain low – at around 0%-0.5%.’
What this confirms is that many of us who took out student loans before attending university had very little knowledge about exactly what sort of debt we were taking on. Simon’s loan was in fact incurring interest at the (variable) rate of inflation (RPI) plus 3% which he had committed to in taking out the loan: that’s currently 3.9%. So despite the shocking appearance of his statement, nothing untoward was going on.
The Debrief spoke to both the Department for Business, Innovation and Skills and the Student Loans Company today and asked whether they felt that prospective students had enough information given to them before signing up. Both insisted that the terms of the loan are clear in the agreement you sign before taking out the loan.
A Department for Business, Innovation & Skills spokesperson told The Debrief that nothing had changed with the way that loans work:
‘The variable interest rate for loans taken out after September 2012 has not been changed. As the OECD has recognised, our student funding system is fair and sustainable. It removes financial barriers for anyone hoping to study, and is backed by the taxpayer with outstanding debt written off after 30 years. Graduates only pay back at 9% of on earnings above £21,000 and enjoy a considerable wage premium of £9,500 per year over non-graduates.’
A spokesperson for the Student Loans Company also told The Debrief:
‘All students that take out a loan must sign a declaration confirming that they have read the terms and conditions of the loan before it will be paid. These terms and conditions clearly set out the interest rates that the student will be charged, when they will start repaying and when interest starts accruing.’
However, how many of us fully understood the terms of our student loans when we took them out? How many of us would have known what RPI (Retail Price Index) was if somebody said it to us?
Student loans are written off after 30 years and current estimates suggest that many graduates won’t ever pay back the debt they have under the current system.
Earlier this year the Government found themselves in hot water when both Martin Lewis, of Moneysavingexpert.com, and the IFS (Institute of Fiscal Studies) criticised them over an announcement that the lower repayment threshold for student loans would be frozen at £21,000 instead of rising in line with earnings. Lewis branded this change as ‘disgraceful’.
Just last week the Government released a report which revealed that the current cap on tuition fees of £9,000 could be lifted, meaning that tuition fees could actually be set to rise again. Some universities, which the Government thinks are worth it, will be allowed to raise their annual tuition fees beyond the £9,000 threshold from autumn 2017.
The nature of our student loans may have been laid out in the small print when we signed but what this demonstrates is that many people still did not know what they were signing up for.
According to a report from the Sutton Trust, as things stand, students in England leave university with more debt than anywhere else in the English-speaking world. Those paying £9,000 in fees owe an average of £44,000 when their finish their degree, compared with an average of £20,500 for public universities and £29,000 for private universities in America and just £15,000 in Canada.
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