Student (not real estate) “loans”

As some real estate students know, loans can be complicated but – typically they’re simple compared to promote or profit share agreements. Claer Barrett had a piece in the FT on Saturday on the advisability of early repayment of student loans.  Her argument was that, even if you’re in the fortunate position of being able to, it’s probably better not to.

She argued that it was a mistake to label them as loans at all since repayments are essentially means tested and that two thirds of students will never repay the full amount. Student loans sound more like JV agreements where the government gets an increased share of your income after certain thresholds have been reached.

For starters, a student loan is not a “loan” or a “debt” in any conventional sense. Unlike a mortgage or a bank loan, if my stepson hasn’t repaid it after 30 years it will be written off. More than two-thirds of graduates who left university last year will never repay the full amount as they simply won’t earn enough, according to the Institute for Fiscal Studies. This is because repayments are “income contingent”, making it much more like an additional tax rate for graduates than a loan. When my stepson earns over £21,000 a year, he will have to repay 9 per cent of his income above this threshold.

Basically you’re going to pay 9% additional tax for 30 years which, according to Martin Lewis (the moneysaving expert) should be seen in terms of a graduate contribution. The amount that you have to earn to repay the loan is pretty high

…to clear borrowings and interest on the average student debt of £44,000 within 30 years, Mr Lewis calculates that graduates would need a starting salary of about £40,000 with 2 per cent above inflation pay rises each year, and take no time off for travelling or raising a family in the next 30 years.

I hadn’t known most of this stuff and I’m in the HE sector. But – I suspect that one key difference from JV agreements is that the government can change the terms of the agreement unilaterally and retrospectively.


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