Thursday, 29 June 2017

Student debt hits twice

A little maths on student debt and why it will hit people twice.

So today's graduates might leave university with £40k of debt or more.

They are paying interest on that debt at RPI plus 3% (e.g in 2012/13 it was 6.6% and is currently 4.6%). That equates to £1,840 this year at the 4.6%.

To stop the debt increasing a monthly payment of £153 is needed. Obviously that wouldn't reduce the amount of debt, but would just cover the interest.

Repayments to the loan are based on a 9% tax on earnings over £17,775 (plan 1) or £21k (plan 2).

The interest on the loan will not be covered until someone earns £38,219 or £41k for plan 2. Until that point the debt will continue to increase.

The debt is written off after 30 years (plan 2) or when you reach 65 (plan 1).

If someone on plan 2 never exceeds £21k earnings and interest rates continue at 4.6% then the government will be writing off  £147k for that student.

Had the government paid for the tuition upfront they would have saved £107k

Assuming 465k students per annum and loans totaling £13.6bn remain static, in 30 years time based on only 1/3rd of the loans being paid off, the debt requiring write off each year at the expense of those same taxpayers (i.e. the 18 year olds who took out the loans) will be £33bn per annum.

This is therefore both a huge problem for the students and for the future taxpayers in general. It is a nice little earner for the lenders who get a guaranteed loan income at a high interest rate.

This is a complete scam.

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