Martin Lewis, 47, spoke to Ruth and Eamonn on This Morning, explaining student debt. The money saving expert was breaking down costs as many school children in the final year are making applications to University. However, some will be put off by the cost. Martin explained this is not necessary, and went through fees and charges. He said: “We now have 50 percent of young people in England going to university – and many more mature students too. Yet much discussed, but little explained, huge debt amount puts many off, especially those from non-traditional university backgrounds.
What really counts is that no student is wrongly put off going to university thinking they can’t afford it
Martin Lewis, Money Saving Expert
“For those who do go, parents can be freaked out by the idea of debt, and I’ve heard of some considering remortgaging or releasing equity on their homes to try and prevent it. Both would be a terrible financial decision.
“The problem is this has been a political football booted by all sides. Combine that with scaremongering headlines with rampant misinformation and the whole thing is pretty dreadfully communicated.
“Don’t confuse explaining the system with unblinkered support of it though. There are issues – and a legitimate political debate over how much of the cost of higher education should be paid for by the state – but my primary aim is simply to tool people up to make appropriate decisions.
“For me, what really counts is that no student is wrongly put off going to university thinking they can’t afford it. While some may be rightly put off, if you don’t understand the true cost, how can you decide?”
Martin explained he would be looking at English loans, and said: “As finance differs across the home nations, I’m going to focus on the most common and costly system, English loans for English students who started in or after 2012. For more on how it works for others – and more info if you’ve an appetite to understand student finance in detail.”
The student loans’ price tag is up to £60,000, but that’s not what you pay
Martin said: “Over a typical three-year course the combined loan for fees and living costs can be up to £60,000, including typical tuition fees of up to £9,250. Yet don’t confuse the price tag with the cost – what counts is what you repay…
- You only repay once you’ve left uni and earn £25,725+/yr (increasing to £26,575+/yr from April 2020). Earn less & you don’t repay.
You repay nine percent of earnings over £25,725, so earn more & you repay more each month.
The loan is wiped after 30 years – whether you’ve paid a penny or not.
It’s repaid via the payroll, just like tax, and doesn’t go on your credit file.”
The amount you borrow is mostly irrelevant – it works more like a tax
He continued: “What you repay each month depends solely on what you earn, ie, nine percent of everything earned above £25,725. As proof, take £26,725 earnings – £1,000 above the threshold – as it’s easy maths…
- Owe £20,000: you repay £90/yr
Owe £50,000: you repay £90/yr
Owe £3,000,000 (if tuition fees were absurdly hiked to £1m a year): you repay £90/yr
“The only difference what you owe makes is whether you’ll clear the borrowing within the 30yrs before it wipes. As many won’t, in practice it’s just like paying nine percent extra tax for 30 years.
“That’s doesn’t mean it’s cheap, just that it doesn’t work like a debt – so the fear of debt hanging over you doesn’t make sense. If you earned more you wouldn’t fear the ‘extra tax’ in the same way. And just like tax, the ones who tend to pay more tend to earn more – so it’s to be hoped there is, financially at least, a ‘no win, no fee’ element here.
“That’s why I’ve been campaigning to rename student loans to the far more descriptive ‘graduate contribution system’. Calling it a loan risks people making poor decisions; and as we educate our young people into what we call a debt, this inures them to getting other types of borrowing too – not a good message.”
There is an official amount parents are meant to contribute, but it’s hidden
Martin detailed: “As well as tuition fee loans paid straight to the university, new students can also take out a maintenance loan, which is paid to the student to pay for living costs.
“Yet for most under-25s – even though they’re old enough to vote, get married and fight for our country – their maintenance loan is dependent on household (in other words parents’) income.
“From £25,000 family income upwards, the loan is reduced, until for those earning around £61,000 and above, it’s roughly halved.
“This missing amount is the expected parental contribution. Yet parents aren’t told that, never mind told the amount. I wrote to the Government asking it to start to do so – it refused.
“So work it out yourself. For new starters in the 2020/21 academic year, the maximum living loan will be roughly £7,750 if living at home, £9,200 away from home, and £12,000 away from home in London. Subtract the amount of the living loan you get from this to find the amount parents are expected to contribute.
“But even the max may not be enough to live on. Bizarrely the biggest practical problem with student loans isn’t that they’re too big, it’s that they’re not big enough.”
For more information from Martin on student loans, look at his mythbusting guide here.
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