Why the size of your student loan debt is (mostly) irrelevant
By Martin Lewis, founder of MoneySavingExpert.com A quick note on why the amount of student loan debt is mostly irrelevant.
Scenario 1: Student debt £20,000. Your earnings £31,000. As you repay 9% of everything above £21,000 your annual repayment is £900.
Scenario 2: Student debt £50,000. Your earnings £31,000. As you repay 9% of everything above £21,000 your annual repayment is £900.
Scenario 3: Student debt £1 billion. Your earnings £31,000. As you repay 9% of everything above £21,000 your annual repayment is £900.
Repayments stop after 30 years regardless.
So the only difference the amount you borrow makes is whether you will clear the debt within those 30 years. All but the very highest earners won’t – so unless you’re on a big salary the amount you borrow is irrelevant. The student loans situation today: The numbers in full Similar is true for the interest – if you won’t clear what you borrow (plus interest) within the 30 years, the rate is often irrelevant.
Student loans’ is a misnomer This isn’t saying things are cheap or even fair, just that it doesn’t work the way most assume. Many should ignore the amount borrowed and interest added and just see this as a 9% higher tax rate above £21,000 that’s paid for 30 years. This is why I believe ‘student loans’ is a misnomer – elsewhere similar schemes are called a ‘graduate contribution’ system. We should too. It’d stop people being scared off uni for the wrong reasons and it’d stop forcing our young people to get a ‘loan’ that then makes them more likely to get other worse types of loan.
Click here to read the full article