(Original post by folksie)
Edit: Additional note on mortgages
The question of 'how does the student debt affect my chance of a mortgage?' has come up a number of times in this thread with a number of people making false claims about it's effect. As some have correctly pointed out, the total debt is not an important factor for banks deciding to offer you a mortgage, what they care about is 'what is this person's disposable income going to be and hence how able are they to keep up with the mortgage repayments?'. If you have have an income of £35,000 with a student loan, that means you're paying £1,260 in fees a year and hence you are identical in the eyes of the bank to someone who has an income of £33,740 and no student loan. It doesn't matter whether the total debt owed is £15,000, £45,000 or £150,000, what matters is your monthly income after tax/loans.
I'm someone who's recently been through university, without any parental support, graduated with debt and am starting to repay it. I've also been working as a teacher and have therefore been seeing first-hand the impact of the fee changes on current A-level students. I think this gives me a better feel than most on how fees actually affect one's life - before, during and after uni.
I am getting very frustrated with news reports that combine inaccurate reporting and misleading comments that make tuition fees seem far more harmful than they really are. The irony is that most of the statements come from anti-fees people who want to 'protect' those from lower income groups but in fact their effect is to put people off going to uni which is doing FAR more harm than the loans themselves.
Based on my own experience I wanted to share a couple of my conclusions:
1) There is no
reason for fees to prevent or put off anyone going to uni.
2) In almost all cases, the bonus to your earnings from uni will vastly outweigh any future repayments you have to make.
3) No matter what your post-uni earnings, repayments are never
high enough to have a noticeable effect on your living standards, or affect things like mortgage payments.
4) Yes fees have gone up, but to be honest the size
of your total debt actually isn’t that crucial, far more important is the terms under which you have to repay it (see below).
Anyway, I think it's helpful to explain my conclusions with a couple illustrations. First, a table that shows how student repayments work according to different levels of post-uni income. Second, a few examples of different types of student/graduate and how fees and debt would play out for them.
Here’s the chart, I hope it’s quite straight-forward it let’s you check ‘say I get a job paying x amount after uni, how will my repayments look’:
Here’s the different ‘case studies’:
Joe goes to university, finishes with £45k debt, ends up getting a job in his dad’s garage – earning a salary of £24k over the next 30 years.
Starting debt: £45k
Weekly wage: £462
Weekly loan payment: £5
Total amount paid over 30 years: £8100
Betty goes to university, finishes with £45k debt, gets a job as a teacher – given her qualifications it’s not the best pay in the world, but hell, she’s helping out society and feels better for it, she earns an average of £32k over the next 30 years.
Starting debt: £45k
Weekly wage: £615
Weekly payment: £19
Total amount paid over 30 years: £29,700
Sam goes to university, finishes with £45k debt, uses his degree to land a well-paid job in the city, earns an average of £90k over the next 30 years, then has a heart-attack because of stress and dies (but that’s another story).
Starting debt: £45k
Weekly wage: £1731
Weekly payment: £119
Total amount paid over 30 years: All of it (taking account of the 3% interest, this would mean paying roughly £49,500 which would take Sam about 8 years).
I hope the above is useful. My intent with it is to allow people to actually get a feel of how uni fees and the corresponding debt actually affect
the lives of those who go to uni. They aren't going to put an anchor round your neck after you graduate, they aren't going to make you live in poverty or have bailiffs at the door if you lose your job, they aren't going to stop you saving for a home or going on holidays. At the end of the day, that’s far more important than a bunch of bamboozling facts and figures about interest rates and fee levels that in my view give a very misleading view about how these loans work.
These are a couple small notes on how I’ve done the above calculations. They aren’t necessary to read unless you had a particular interest in how the calculations have been done.
1) I haven’t included inflation. This is because although loan interest is index-linked to RPI and this will make debt grow faster, it is reasonable to expect this is (at least) cancelled out by inflation in wages (e.g. teachers get paid an average of maybe £32k now but in 30 years time inflation will have increased this to maybe £58k. There is arguably an effect of ‘fiscal drag’ due to the fact as your wage is increased by inflation the % of your wage paid towards loans will increase but this will only happen if the government doesn’t increase the point at which repayments start in line with inflation.
2) The figures for annual/weekly salary are gross (i.e. before tax has been deducted). This also applies for the calculations of proportion of salary paid towards loan. So for example, Betty pays £19 out of a gross salary of £615, which translates to an after-tax salary of £463 (this still works out as 1/25th of her after-tax salary, so I don’t think it impacts the significance of the figures.