Friday, 16 May 2014

Are Student Loans a Monumental Liability?

My son has reached the age where he is considering whether or not to go to University. With tuition fees at £9,000 a year for most courses and the cost of student accommodation anywhere between £100 and £200 per week, any decision to go to University needs careful consideration.

I know the Government has trumpeted that students loans make it easy for everyone to go to university but I thought I ought to look at what my son would potentially be taking on in terms of financial commitment.

Using the Government's Student Loan repayment checker I thought I would check just how much my son would have to repay. Assuming £9,000 per annum tuition fees and £7,675 maintenance loan (to pay for food and accommodation) I had to include the estimated starting salary for my son. The site suggest the average graduate starting salary is £25,000 a year (although experience of my nieces suggests that is wildly optimistic) so that is what I entered.

So here are the facts.
Total borrowing £50,025
Total repayment £146,436 
In the final three years of the loan he will be paying back between £9,000 and £10,000 a year in loan repayments.
After 30 years there will still be £29,450 of the loan outstanding which at that point will be written off.

The problem is that although the repayment in the initial years is low, it is insufficient to cover the interest let alone repay any of the principal. As a result the outstanding loan value continues to increase for the first 15 years by which time the outstanding balance is now £74,350 and repayments are £5,000 a year.

Do I think it makes sense for my son to commit himself to paying off almost £150,000 to get a University degree. Definitely not. That will effectively ensure he never has a chance to get on the property ladder. Will we have to forgo holidays, new furniture, car replacement, (and just about everything else) for the next seven years and use all our savings so that we can fund his and my daughter's university places? Possibly. What I resent most of all is the Etonian millionaires in the Cabinet setting up these crazy schemes without thinking through the consequences for ordinary people like me and my family. It will be inevitable that many students will be condemned to a life of renting and debt repayment and that, in my opinion, is wrong.

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