Warning: Parents with 2+ children who’ll go to uni, SAVE NOW, the system’s biased against you

The entire premise of our current student finance system is supposed to be “you don’t need cash to pay upfront to go to university!” Yet these days that’s simply not true.  Many parents, especially those with more than one child, will need a war chest of possibly £10,000s.

This isn’t about tuition fees. University fees are automatically paid for you by The Student Loans Company – and you only repay once you leave, and then only provided you earn enough.

In practical terms they works less like a debt, more like a tax, as after graduation most simply repay 9% of everything earned above £21,000 (soon to rise to £25,000) for 30 years. This is supposed to be, financially at least, a no-win-no-fee higher education. For a full explanation see my 20+ Student Loan Mythbusters guide.

So tuition costs aren’t a practical barrier for students, they’re a cost for graduates. The real practical problem is the university costs the State won’t cover – and especially how that impacts parents with more than one child.

To understand the problem with having more than one child at uni, you need to understand the basics first, so let me speedily bash out a step-by-step …

Problem 1: Living loans are now heavily means tested

Student are entitled to a maintenance loan to cover living costs – which is then added together with the tuition fee loan – and all are repaid on the same terms as above.
Yet while every first time UK undergraduate is entitled to the full tuition fee loan, the amount given for maintenance is means tested – and the means tested proportion has increased substantially in recent years from a third to over a half.

Problem 2: The means testing usually depends on parental income 

Even though they are adults, old enough to vote, get married or even fight and die for our country, most under 25s are considered ‘dependent’. So means testing is based on household, in other words parental, income.

This means testing start for those with family income of just £25,000 – way less than average income for a family with two working adults. And it maxes out on earnings of roughly £60,000 to £70,000 depending whether the student lives at home or away – at that point the amount of loan given is roughly halved.

Problem 3: The missing amount is the parental contribution – but parents aren’t told

The gap between the full loan and what the student receive is the ‘parental contribution’ (not officially – but as it solely dependent on parental means testing – it’s self-evident).  Yet disgracefully this is never spelled out to parents.

wrote to the University Minister asking it to be transparent and communicate this properly, but he replied and said no. And repeated that again when I publically debated him on it a few days ago. So as the government won’t help, you’ll need to work it out yourself. The maximum annual living loans for this year’s NEW starters are…

– Living at home: £7,097
– Living away from home: £8,430
– Living away from home (London): £11,002.

To work out your parental contribution subtract the loan you get from this. See my full parental contribution guide for full help and numbers on previous years.

Of course knowing the parental contribution doesn’t make it affordable – but at least you’re aware of the gap. And ‘dependent’ students should ensure they at least have the discussion with their parents.

If parents can’t or won’t cough up, their offspring have no way to force their parents to contribute. You can only be assessed independently if you’re over 25 or have financially supported yourself for 3+ years, have no living parents or are caring for a child.

Problem 4: Even the maximum loan isn’t enough

Often parents come up to me on my TV roadshows and say “it’s outrageous my daughter’s halls cost alone is £7,000 and her loan is only £6,000!” The first thing I do is explain the hidden parental contribution system and they’re surprised.

Yet even then, at the level of the full loan, I hear more and more reports that the living allowance simply doesn’t cover basic costs. And that means those on courses with long hours, who can’t work, are in trouble.

So with the cost of living increasing, bizarrely the biggest practical problem with student loans isn’t what you often hear, that they’re too big, it’s that they’re not big enough.

Problem 5 – It’s far worse the more children you have

The means testing of maintenance loans in strict terms depends on what’s called household ‘residual’ income. This is defined as income…

  • Before tax
  • After any pension contributions
  • After allowances for other dependent children

To find the key info of what allowances are made for dependent children, you need to go to page 10 of Student Loan Company’s ‘How you’re assessed and paid guide’ where it says: “We’ll ignore £1,130 for any child other than you who is totally or mainly financially dependent on them [parents].”

In other words if you’ve two or more children at university consecutively, the only concession is that your income for assessment is mildly reduced. Or to put it more plainly…

Even if you need to shell out £5,000 for your other child, the system only counts that you’re paying out £1,130

This isn’t a niche problem.  Most parents have children who are relatively close in age, so are likely to be at university at some overlapping point. To test this I did an indicative poll on Twitter.

It shows well over 50% of parents have children who could overlap. And that can be incredibly expensive – just imagine someone with triplets!   To play this out practically here’s an example…. (I’ve ignored loan size changes each year for simplicity)…

The Medium family have two children. Mrs Medium lives in Manchester and earns £37,000/yr and Mr Medium part-time work pays £15,000. Together their family income, after £2,000 of pension contributions is £50,000.

Child 1: Their eldest child, Erma Medium goes to Newcastle Uni. Her family income is calculated at £48,900 (slightly reduced as her younger brother’s a dependent child living at home). This means rather than the full £8,430 living loan, means testing reduces it to £5,540, leaving a needed parental contribution of £2,890 a year.

Child 2: Erma’s brother Ivor is 20 months younger, and starts at London University the following year. The fact that his sister is dependent means rather than the full £11,000 loan, he gets £8,060, leaving a needed parental contribution of £2,940 a year.

So when they have two children at university the total parental contribution is £5,830 a year.

Just to stretch the point, compare that to what the parental contribution would be if there’d been only children from separate families (on the same income). Erma family would’ve had a parental contribution of £3,030 and Ivor £3,080. So only an extra £140 needed from two families.

The parental contribution ready reckoner for those with multiple children at Uni

To help I’ve drawn up this quick table that sets out for you, as the system currently is, how much the parental contribution is likely to be each year.

Annual parental contribution. Student(s) living at home
Parental Income 1 child at Uni 2 at Uni 3 at Uni
£25,000 or less £0 £0 £0
£30,000 £600 £920 £980
£40,000 £1,800 £3,320 £4,570
£50,000 £2,990 £5,710 £8,160
£60,000+ £3,970 £7,950 £11,750
Annual parental contribution. Student(s) living away (outside London)
Parental Income 1 child at Uni 2 at Uni 3 at Uni
£25,000 or less £0 £0 £0
£30,000 £610 £940 £990
£40,000 £1,820 £3,360 £4,630
£50,000 £3,030 £5,780 £8,260
£60,000 £4,240 £8,200 £11,890
Annual parental contribution. Student(s) living away (in London)
Parental Income 1 child at Uni 2 at Uni 3 at Uni
£25,000 or less £0 £0 £0
£30,000 £610 £950 £1,010
£40,000 £1,850 £3,420 £4,710
£50,000 £3,080 £5,880 £8,400
£60,000 £4,310 £8,340 £12,100

PS Obviously I’ve not covered every eventuality here. You may have one child living at home and one away, but hopefully these tables give you a rough indication of how it works.

Will some feel the need to ‘pick’ which child can go to Uni?

As you can see at the extreme level some parents will need to fork out over £12,000 a year. My concern is it means some families will need to ‘pick’ which child goes to university – denying the other. Do let me know if that’s you feel pressured to do that in the discussion below.

For most, prioritising one child would be on academic or career merit. Yet even worse there are still likely some in society who value girl’s education less than a boys, and we could be going back to the dark ages.

What can prospective parents and students do about it?

While many editorials are about the size of student debt – the complaints I hear most from parents and students are all about living costs. Yet many only learn this once they get to university as the debate is so skewed towards “debt”.

Until more understand our misnamed system (I’ve campaigned for it to be renamed a graduate contribution system not a debt) genuine practical problems like this will continue to be missed. From a political perspective talk to your local MP, and other parents so many more are prepared. It’d be nice to think things will change, but I see little appetite for that at the moment.

So in practical terms, while I’ve always argued don’t pay tuition fees upfront, unless things change parents will need to save up to ensure you’ve cash set aside to support your child’s living costs while at uni.

I’d love to hear your views, whether you knew about it, and if you’ve been impacted how you dealt with it…

Are student loans broken? What I told Uni Minister Jo Johnson

If you read the papers you’d think the answer is a clear cut yes. I too agree, to an extent. Yet the most commonly quoted problems tend not to be what worries me most, and the things least mentioned can hurt.   

On Tuesday, MSE organised an event at the Tory party conference, where I debated this subject with University Minister Jo Johnson, chaired by Nick Hillman, Director, Higher Education Policy Institute.

My core aim was to try and push that if this scheme is to continue it needs renaming and reshaping. That was picked up by The Times Higher that reported Minister agrees student loans should be renamed as did The Telegraph. While the tabloids focused on Tory minister tells students to live frugally – though to be fair what he actually said is that some students want to do that, rather than all should.

This was an important debate, so I thought, as we weren’t allowed to broadcast it, it’s worth noting down for posterity my opening remarks (it’s up to the minister if he chooses to publish his). Below is a transcript (edited to make it a bit easier to read and with added sections), though I speak freehand and sometimes with venom, so it’s not the easiest transcript to scan as it misses that tone.

—————————-

The Chair opened by asking me what I thought of the announcement a few days before, that the student loan repayment threshold was to be increased to £25,000 u-turning the prior decision to freeze it (read why the student loan repayment U-turn is so important).

I think as somebody who has called the Government liars, backtracking, sold out a generation of students on behalf of freezing the threshold, hired lawyers to investigate trying to overturn it you could say I’m a little bit pleased at the U-turn this week.

So, yeah, absolutely the right move, important to say that I am not opposed to cutting interest rates at all. I just think if you’ve got a block of money the first place to put it is in increasing the repayment threshold. Cutting interest rates, increasing maintenance loans are very important too. But if you’ve got one block of money, start with increasing the threshold, that retrospective change was bad, but I’ll come on to that formally in a second.

First, I’d like to frame exactly what I’m going to talk about today.

Today’s debate is about how we reshape the current system

Clearly, the landscape in student finance has changed, the Labour Party are talking about no tuition fees, so they are saying the cost of their education should be met through general taxation – a perfectly valid and honest theory and philosophy.

But we are here at the Conservative Party Conference and rather than going through that bigger debate, which frankly is not going to wash with the Minister. So I want to be practical, if we accept that the individual is going to have to contribute to the cost of their higher education, is the structure of the way we do that right now correct or not? And that is what I am going to be talking about, but don’t take that as a reading that I discount the Labour view.

Marketisation – fail

The idea that each university is going to be able to charge different fees, that gives the individual a choice of how much they want to pay for their education, has been a robust and absolute unmitigated failure.

Almost every institution charges the same amount. It hasn’t worked, it should be scrapped. And it is rather ironic that one of the prime reasons it is a failure, is because it should have been a failure.

The way we have set up the repayment of student finance which says you repay 9% of everything above a threshold, currently £21,000 (but going up to £25,000) for 30 years before it wipes means for the vast majority of graduates higher tuition fees won’t cost them much more.

Only higher earning graduates would repay more on a £9,000 course than a £6,000 course (the original range) once you incorporate the maintenance loan. So, my advice from day one to students was to choose the right course and ignore the tuition fees, because you will only have to repay more if you earn a shed load of money once you leave – in which case chose the right course to hope that happens.

So it would be counter logical for marketisation to have worked in any way. So I think we really need think about how that one is affected and I think part of the problem of that I am going to come onto later is the naming of the way that we do the system. Now let’s move on to that retrospective change.

Retrospective Change: Lack of faith isn’t fixed by a U-turn

Note this refers to the Governements freezing of the student loan repayment threshold at £21,000. It was supposed to go up with average earnings from 2017. 

This was disastrous, and the fact there has been a u-turn hasn’t stopped the disaster. The disaster is very plain.

When a student and their parents, grandparents make the decision to go to university they are weighing in many factors. We hope they are looking at the finance. It is over a very long period. And what they want to know is what I am signing up to is what I will get.

In the past we had never seen a substantial retrospective change to the terms and conditions of going to university. We got it for 2012 starters. The breach of the very loud promise made by David Willets – and I have letters written by David Willets to parents that say from 2017 the threshold will go up, with no caveats, no mention of terms and conditions.

There is no commercial company who has a loan based system who would have been allowed to make that change, even though it wasn’t in the small print when the FCA regulates loans. It says your core marketing terms must be honoured even if they’re not in the small print, same with mortgages, go check it out – we’ve had this before. They would not have been allowed to do that. The Government have done it.

That breach of promise does two things. First of all, it has knocked the faith of students in the student loan system we have. How can you trust it when there was a change to the terms?  “I signed a contract and you have unilaterally changed the terms – that was wrong.”

The second thing, it has knocked the faith of students in the entire political system because the political classes, and lets be straight as we are sitting here, the conservative political classes, primarily, lied to them and misled them. And while the u-turn is welcome in practical terms, the shaking in the faith has not been fixed.

As someone who put myself out there because I believe my own political view should be secondary to making sure there isn’t one young person in this country who is put off going to university for the wrong financial reasons. The biggest questions I get is what if they change the rules. And that retrospective hike has knocked that forever and that hasn’t fixed it.

We have to ensure that every student knows what the terms and conditions are when they start and there wouldn’t be any retrospective changes. This is crucially important and should be locked into statute or at the very least if we are going to have variable rates and conditions within the student loan that need to be overtly declared and transparent.

For example you could say, “We will never change the 30 year limit. That is locked into statute. We may change your interest rate. We may change your repayment threshold.”  Not in the small print. If we are going to have to explain it, let’s be upfront.

One of the misunderstandings out there this year is that the Government has increased the interest rate. No, the interest rate is unchanged, the rate of inflation changed, and the interest rate is based on the rate of inflation. I’ve been out there defending on that, because it is unfair to accuse the Government of changing interest rates.

You can have terms that are changeable but you must declare them and be open and transparent about them. That has been breached and as always when you breach a rule, putting it right a year and a half later doesn’t put you back to where you were. Faith has gone.

It is no longer true that there’s no need to pay upfront to go to university

I will be publishing a further blog on this next week

This isn’t about tuition fees. This is about the most import and biggest practical problem that students face at university. Affording to live.

[Pause for a cheer, including from the President of the National Union of Students]

Quite simply, we have increased the means testing. We have mislead parents. On my roadshows, parents come up to me and say my kids are given £5,000 and their hall fees are £6,000 why don’t they get more? And I say to them, how much do you earn and they tell me £50,000 and I say you do realise that the full loan they would have got is, let’s say £9,000 and there is a parental contribution of £4,000 and they say, no.

There is an official parental contribution on the maintenance loan.  I wrote to the Minister, he will remember it, asking that in the loan letter, instead of telling parents “your child’s loan is £5,000”, it is changed to say “the full loan for your child is £9,000 because of means testing your child will only receive £5,000 therefore, there is a parental contribution of £4,000 to be had”. Though I would accept “there is an extra £4,000 gap that you need to make up”. That level of transparency is crucial.

It isn’t that the loan isn’t big enough for those parents, it’s that they have been means tested and don’t get the full loan but we hide it and it is somewhere like page 32 in the small print of the student loan literature. It is absolutely unfair and what we are doing now is knocking the faith of people in this system and meaning students cannot afford to go to university because the truth is your parents will need to give you money, they will need to save up and if you’ve got two kids at university which over 60% of parents have two kids within a 4 year gap.

Two kids at university at the same time, even though you are having to contribute £5,000 to your first kid they only reduce the residual income by £1,130 in other words, if you’ve got triplets you’re really screwed because it’s not taken into account. So, what we have here is a real practical problem for middle class parents. Lower income parents get the full loan.

Middle class parents struggling to find the money to send their kids to university and their children don’t have the cash, nobody tells them about this and their children have no way of forcing them to give them the money.  The biggest problem with student loans if we keep the current system is that the loans aren’t big enough, not that they are too big.

The language of debt is psychologically damaging – it should not be called a debt

This is all about changing the name to a graduate contribution system see my student loans aren’t a debt blog for more info.

For over 20 years we have educated our youth into what we call a debt and we have never educated them about debt properly. Even though financial education is now on the national curriculum – I campaigned for it – it is a pyrrhic victory, we’ve not put any resources into it. But secondly what we’ve done is we’ve inured an entire generation into borrowing, because if we say you’ve got to get a debt to go to university then they go on and get their credit cards and their payday loans, it has been tremendously damaging.

The language of debt is misleading. I can’t explain the system, because everyone says, I am going to have this debt hanging over me that I am going to have to repay. No, this is a contribution system in proportion to your financial success after university. By calling it a debt it makes it more difficult to explain. That is why people call to have the interest rate cut rather than raising the repayment threshold. They don’t understand it. If you change the name it will be closer.

So my big ask, if you want to fix this, you are going to stick with this system then get rid of the name of debt. Get rid of the word interest, call it an uprating. This in every other country is called a graduate contribution system. That’s effectively a graduate tax, but technically you can’t call it that because you can’t hypothecate it and you can’t tax people abroad.

Wrapping up (at speed due to time constraint on speakers)

The system is a graduate contribution system and should be called so, but don’t do that in isolation. Give people a guarantee of what can change and what can’t change.

You want to make changes, fair enough. That’s politician’s remit, but be really up front for example – it will be wiped after 30 years, the interest will be related to inflation but we might change it exactly the proportion it relates to inflation. You will repay 9% above the set threshold but we may change the threshold.

Call it a contribution system, lock it in, give people respect so they know exactly what they’ll sign up to. People might understand it better, might respect it better and might start to understand your argument a little bit better about it being shared between the individual and the tax payer. Right now the system is broken cos it aint a loan, and we call it one. 

If you managed to read through all of this, well done, its not easy in the transcript form. After that, then as well as the Ministers statement there was 40 minutes of often robust Q&A and debate, hopefully it did some good. 

 

Why cutting the student loan interest rate will only help richer graduates…

This weekend the papers have been mooting that Theresa May’s Government is looking to cut the English and Welsh student loan interest rate – now at a 6.1% headline rate for those who began uni in or after 2012 – in order to appeal to the youth vote.

I find this frustrating. Not because I object; I’ve always believed on principle that student loan interest shouldn’t be higher than inflation – charging students for their education is one thing, charging them for the financing of their education is a step too far.

Yet if the Exchequer has limited resources to finally shell out something to relieve student loan pressures, cutting the interest rate is far from a priority – in fact, it’s poorly targeted.

Student loan interest rates change every September, based on the RPI rate of inflation the prior March. For this 2017/18 academic year, the rates are as follows:

– While studying: Interest is charged at RPI + 3% (= 6.1% for this academic year)
– From the April after leaving: Then the rate is RPI (3.1%) for those earning under £21,000 and RPI + 3% (6.1%) for those earning over £41,000. Those in between are charged on a sliding scale.

Do note I write students are CHARGED interest, not students PAY it.

That’s because student loan repayments solely depend on what you earn, not what you owe.

Graduates repay 9% of everything earned above £21,000 for the shorter of 30 years from the April after they graduate, or until they clear what they borrow (see my five things every student and parent should know blog).

So if someone earns, for easy maths, £31,000 (ie, £10,000 above the threshold), they repay £900 a year, regardless of whether they owe £10,000 or even if they (absurdly) owed £1,000,000. The same is true of the interest rate: at £31,000 earnings, people repay £900 a year regardless of whether the interest is 3.1% or 500%.

In other words, what you borrow and the interest rate have no impact on annual repayments. Instead, all it changes is whether or not you’d clear the loan plus interest within the 30 years.

Who would cutting the interest rate would actually help.

According to the Institute for Fiscal Studies, it’s currently likely only the highest earning 23% of graduates will clear their debt within the 30 years.

So they would definitely save money from an interest rate cut (as would some who earn a little less than them as they’d now join the club of those who’d ‘clear within the 30 years’.)

Yet those who earn less will feel no change whatsoever from a lower interest rate. In other words, cutting the interest rate ONLY HELPS THE HIGHEST EARNING GRADUATES. Lower/middle-earning graduates are unlikely to gain as they won’t clear much more than their actual borrowing – never mind the interest – within the 30 years.

In fact, for a good percentage of lower-earning graduates, student loans are interest-free (full info on this in my Will you really pay 6.1% interest? guide).

The real horror is the freezing of the repayment threshold.

Contrast that to the Government’s real student loan horror this year – the April 2017 freezing of the repayment threshold at £21,000 until at least 2021 – when it was supposed to rise with average earnings.

All students earning over the threshold will repay more each year than they would’ve done – a real hit especially for lower and middle-earning graduates. And in the long-run that hurts almost every graduate EXCEPT higher earners (see why high earners gain).

The problem here is one of psychology. The interest rate seems scary so we hear large cries – even though in practice it doesn’t affect most. Freezing the repayment threshold is complex so we hear little – but it affects millions. Reversing that is a far greater priority for graduates.

To make policy just to appease fundamental misunderstandings is wrong. The sooner student loans are renamed a graduate contribution system, the sooner we can start to be rational and protect young people who need help, rather than illogically prioritising helping those who don’t.

So to summarise, cutting interest rates – while not bad – should be far from top of the priority tree.

For graduates, unfreezing the repayment threshold is a priority. For current students, interest rates have no practical impact – what does is the fact that many don’t have enough money to live off.

The priority there should be money to give bigger, fairer loans for living and to clear up the poorly operating hidden parental contribution system.

PS: I originally bashed out a slightly shorter version than this on social media over the weekend, in case you think you’ve seen it before.

Related past blogs: 

Is your student loan being sold? The answers we must get from Government

Scrapping of student grants – what it means & how bad is it?

Labour’s plan to cut tuition fees to £6,000 is financially illiterate

Panicked about interest on your student loan statement? For many, it’s nonsense!

Viral letter about mis-sold student loans due to retrospective interest hikes is well meaning but wrong

Five things EVERY student and their parents should know

Fear grabs votes and makes headlines. Sadly, though, both sides’ political spin and spittle over student finance have resulted in widespread rampant misinformation – and it’s got worse again this year. 

So with a new academic year about to start, my message to students and their parents is simple – forget the politics – ensure you understand the real impact on your pocket of going to uni.

Don’t confuse explaining the system with unblinkered support of it. I do have issues with the system. Yet the big issue – how much of the cost of higher education should be paid by the state (ie, taxpayers or through Government borrowing), and how much by the individual benefiting from the education – is political, not financial.

Yet that isn’t my aim here. I simply want to tool people up to make appropriate decisions. 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 (see how it works elsewhere in the UK).

I should point out this is my summary blog – if you’ve got an appetite to understand it in detail, do read my full 20+ Student Loan Mythbusters guide.

1. Student loans’ price tag is up to £50,000, but that’s not what you pay.

Students don’t pay universities directly. Tuition fees, typically up to £9,250 a year, are paid for them by the Student Loans Company. Over a typical three-year course the combined loan for fees and living costs can be up to £50,000. Yet what counts is what you repay…

– You only repay once you’ve left uni and earn £21,000+/yr. Earn less & you don’t repay.
– You repay 9% of earnings over £21,000, 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.

For full info on this see the full how you repay info in the 20 student mythbusters guide.

2. There is an official amount parents are meant to contribute, but it’s hidden.

The student loan doesn’t just pay for tuition fees, it also includes a living loan (officially called the maintenance loan) paid directly to the student to help with living costs.

Yet for most under-25s, even though they are old enough to vote, get married and fight for our country, their amount of their living loan is dependent on household (in other words parents’) residual income.

From just £25,000 family income upwards, the loan is reduced, until for those earning around £60,000 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. The maximum living loan for this year’s NEW starters is £7,097 if living at home, £8,430 away from home, and £11,002 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. See the maximum loans for ongoing students.

That doesn’t mean parents can afford it – but at least you’re aware of the gap – and students should at least make sure they have the discussion with parents.

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.

3. The amount you borrow is mostly irrelevant – it works more like a tax.

What you repay each month depends solely on what you earn, ie, 9% of everything earned above £21,000. As proof, take £31,000 earnings, as it’s easy maths…

– Owe £20,000: you repay £900/yr.
– Owe £50,000: you repay £900/yr.
– Owe £3,000,000 (if tuition fees were absurdly hiked to £1m a year): you repay £900/yr.

The only difference what you owe makes is whether you’ll clear the borrowing within the 30yrs before it wipes. The Institute for Fiscal Studies estimates only the HIGHEST-earning 23% of graduates will.

So unless you’re a seriously high earner, ignore the amount you ‘owe’. In practice you’re paying an increased rate of tax for 30 years. In fact, at current rates, it works like this:

Effective marginal tax rates 2017/18
Earnings Uni-goers Non uni-goers
Up to £11,500 No tax No tax
From £11,500 – £21,000 20% 20%
From £21,000 – £45,000 29% 20%
From £45,000 – £150,000 49% 40%
£150,000+ 54% 45%

This doesn’t make it cheap, but it does mean that all the talk of burdening students with debt is often misleading. Instead we’re burdening students with higher taxes over a certain amount, and they should decide if that’s worth it.

Remember, though, that 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.

This is why I campaign to rename student loans to the far more descriptive ‘graduate contribution system’, as other countries call it. Calling it a loan is dangerous; it means our young people are educated into a ‘debt’ and then end up getting other types of much worse borrowing too.

4. Interest is added, and the headline rate is 6.1%, but many won’t pay it.

Student loan interest is set based on the rate of inflation – which measures how quickly prices are rising. The rate changes each September based on the Retail Prices Index measure the prior March (3.1% last March). The rate is set as follows…

– While studying: RPI + 3%, so this year it’s 6.1%.
– From the April after leaving uni: It depends on earnings. For those earning under £21,000 it’s RPI, for those earning over £41,000 it’s RPI + 3%. For those who earn in between it’s a sliding scale.

I’ve seen anger this year at “the Government hiking the rate” – that’s a little unfair, as the RPI rate changes each academic year with inflation, and that hasn’t changed – it works as it always has. For more details see past years’ rates.

Another confusion here is people talk about students paying 6.1% interest.  That’s not correct – 6.1% is the amount added to the amount owed. And as explained already that doesn’t usually change what you repay.

The interest only has an impact if you’d clear what you borrowed initially in full over the 30 years – many won’t, and if so, student loans are, in practice, interest-free. And even of those who will, all but the highest earners won’t come close to repaying all the interest.

If you’re a graduate, and that’s getting you thinking, do read my full Should I repay my student loan now, as it’s accruing 6.1% interest guide.

5. The system can and has changed.

Student loan terms should be locked into law, so only an Act of Parliament can negatively change them once you’ve started uni – but, they’re not. So sadly my explanation needs the major caveat of ‘unless things change’.

This is especially true as we’ve seen a very poor change this year (that I’ve been ranting against, sadly to no avail). It was promised the £21,000 repayment threshold would start increasing with average earnings, but it’s been frozen until 2021. The effect of that is recent graduates are repaying more each month than they were promised when they started. See more on the campaign to stop the threshold freezing.

The practical impact of this isn’t enormous in the grand scheme of things, but the unfairness is. However, you can’t second-guess future changes (as we don’t know who’ll be future Governments) and we have to hope in future it’ll be respected. See more on if changes are likely.

If you hear any student, prospective student or parent panicking about student finance, and worried about the ‘horrid debt’, do feel free to point them in the direction of this blog.

STILL GOT QUESTIONS? Do read the full 20+ Student Loan Mythbusters guide.

Build Relationships With Faculty as an Online Student

Professors play critical roles for students – as educational advisers, mentors and career guides.
Prospective online students may be concerned about faculty’s ability to fulfill these roles from afar. In traditional classrooms, students can be one of several hundred, but most online courses have fewer than 25 students, making instructors more accessible.
Still, you will need to be more proactive in an online course to build a relationship with your instructor, and doing so with those who can help you reach the next step in your career is key. You can plan to start this as early as right after you enroll or around the time classes start.

[Discover how online degrees can help adults switch careers.]

Here are five tips prospective online students can follow to develop relationships with their professors.
1. Introduce yourself before class begins: Generally, faculty members allow students to access an online course before it actually starts – introducing themselves and offering insight into the specifics of the curriculum. Course lists with instructors’ names are often available even earlier.
Google your professor to retrieve his or her contact information and then email and share your academic and career aspirations. Ask about the course. Your professor will remember you as well as your enthusiasm and focus on achievement.
2. Communicate directly with the professor: Most online classes require faculty members to have regularly scheduled virtual office hours via videoconferencing. These chats can help your professor get to know you in a live virtual setting.
Faculty members may also use technology such as email or social media to communicate with students. Expect responses within 24 hours.
Before you enroll in courses, visit websites that rate professors, and check if they are responsive to students. Professors who believe you are engaged in the mentor-student relationship will be more likely to help you in your professional and career development.

3. Ask for career advice: Prospective online students should look for professors who are also real-world experts and can provide practical information on how to advance their career.
These working professionals may know leaders in the field and be able to provide local networking opportunities with well-connected colleagues. Students in traditional classrooms often ask faculty for career advice in person; however, online students may feel awkward making the same request.
Once you are enrolled, don’t hesitate to do so. Instructors want you to succeed both at the university and in your careers.

[Learn how to build a campus network as an online student.]

4. Be strategic about building a relationship: Plan to take the time to proactively communicate with professors so you can demonstrate your interest in their courses, academic maturity and motivation to succeed. Ask well-structured questions. Refer to specific assignments or text material.
Likewise, aim to attend online office hours and submit your assignments by the deadlines. This way, when it’s time to request a letter of recommendation, your professor will know you well.
5. Meet in person: It may feel counterintuitive to suggest meeting an online faculty member face to face. But in reality, the personal interaction can often help cement a relationship between you and your instructor. Plan to visit the professor early on in your program.
The takeaway: When building a relationship with your online course professors, be proactive and take the first step even before you begin classes. The reward: a professor who is eager to facilitate your academic success and who is truly a partner in your career advancement and professional growth.