We investigate the full price of student loans to see if the £57,000 worth of debt from a university degree is a price worth paying
Thousands of teens in the UK are bracing themselves for one of the biggest decision of their lives this Thursday
THOUSANDS of teenagers will make one of the biggest decisions of their lives on Thursday when they receive their A-level results – should they accept a place at university?
By signing up, they are committing themselves to as much as £57,000 of debt which they could spend three decades paying off.
Today, Sun Money investigates student loans.
TAMANNA MIAH, 24, dreads the annual arrival of her student loan statement with its daunting breakdown of debt she has accrued.
Her four years of studying media, communications and politics has so far cost £44,484 in tuition and maintenance loans, as well as an eye-watering £6,206.14 in interest.
And her “worrying” debt will continue to spiral as she spends the next few months or years hunting her dream job in journalism, media or politics.
Tamanna, a final-year student of Canterbury Christ Church University in Kent, said: “It’s a huge amount of debt.
“Now that I look at the bill I think, was it really worth it? With the amount of money, time and effort, if I could rewind I probably wouldn’t have gone.”
The statement shows interest accruing at just under £200 every month at a current rate of 4.6 per cent.
And with interest rates rising to 6.1 per cent next month, students entering university in England for the first time this year will graduate with average debts of £50,800, according to the Institute For Fiscal Studies.
Those from the poorest 40 per cent of families, meanwhile, will be lumbered with an average debt of around £57,000, because they need to borrow more for living expenses, the think-tank found.
But experts on the system claim that students like Tamanna need not worry about having incurred such huge balances.
They say because student loan repayments are based on how much students earn, not on how much they borrow, the overall total owed is “meaningless”.
If a student in England or Wales never earns above £21,000, they won’t repay anything.
Those earning more will pay back nine per cent of anything earned above £21,000.
So those who earn £22,000 would repay £90 in that year, as that is nine per cent of the £1,000 they are earning above the threshold.
And graduates on £31,000 would pay £900, as that is nine per cent of the £10,000 they earn above the threshold.
Scottish and Northern Irish students have a lower payback threshold at £17,775.
Repayments are deducted from your salary unless you are self-employed when you pay through your self assessment.
After 30 years, any outstanding debt will be written off.
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According to finance expert Martin Lewis, an estimated 77 per cent of graduates won’t have paid back their full loan after 30 years.
Martin, former head of the Independent Taskforce on Student Finance Information, described the loan structure as a “no-win no-fee” education system.
He said: “The actual amount you borrow is mostly irrelevant for the vast majority of people who will go to university. What counts is how much you repay and that is nine per cent of your earnings above £21,000 for 30 years.
“The current estimate is 77 per cent of people won’t clear it within the 30 years before the debt is wiped.
“It means borrowing and interest is frankly irrelevant. You shouldn’t see it as a debt - it should be renamed a graduate contribution system.
“The idea that there is a debt hanging over you is meaningless.”
Martin predicts that only the graduates with a starting salary of £40,000 or above in August 2017 will eventually clear the debt, assuming their income rises to above £150,000 in 30 years.
But Tamanna is still worried.
She said: “By the end of the 30 years I think I will have paid less than half of the total back. But who wants to be 55 and still be thinking about their student loans?”
For Martin, what is more worrying than the mounting loans is what he calls the “hidden” cost of student life, which is the amount parents are expected to contribute.
Student maintenance loans are means-tested, meaning if parents in England earn more than £25,000 they will be expected to help with their child’s student living costs.
This could mean forking out more than £5,000 a year, the finance expert claims.
To help cut costs, we have provided our tips to save cash at uni.
Cutting cost of your degree
- CONSIDER going to a local uni. Living at home saves £373 a month on accommodation, it is estimated.
- See if you qualify for any grants, scholarships and bursaries.
- Check if your university has a hardship fund.
- Get a part-time job. KIS Finance says working for ten hours a week could earn you £75.
How the lending is calculated
STUDENT loans are made up of tuition fees and maintenance loans.
Fees are capped at £9,250 a year for courses beginning in 2017.
Interest is charged at the rate of inflation plus three per cent while the student is studying.
From the April after their course ends, until the loan is repaid, the rate varies depending on income.