I recently overheard two teenage girls on the bus talking about the prospect of going to university. They were considering it, but one of them, in particular, was massively put off by the ‘huge amount of debt’ it will put you in.
“Even if you go to Australia to try to get away from it, the debt is still there, it follows you!”
I had to stop myself from putting the record straight for these girls, so for anyone that still thinks that student fees are scary or ridiculous this is for you.
Don’t worry about the debt you’re racking up by being at uni, because it’s pretty irrelevant
Yes, you will come out of university with ‘debt’ and yes, it may seem daunting, but honestly it shouldn’t be. I’m not saying things are cheap or fair, that’s a different story – but don’t worry about the debt you’re racking up by being at university, because it’s pretty irrelevant and doesn’t work the way that most people assume.
Tuition fees shouldn’t put people off. Yes, they might deter half-hearted students, and if there were no fees more people may want to go to university simply for the sake of it, but this isn’t good for anyone anyway.
What terrified one of the girls was that the debt was ‘only’ wiped off after 30 years. I think she envisaged 30 years of crippling debt when it actually won’t affect your life at all. Your loan won’t appear on your credit file and so won’t impact your ability to get a mortgage, and you definitely won’t have loan sharks knocking at your door.
The system’s designed so that, in the main, those who gain the most financially from university contribute the most
The £50,000 (ish) student debt that you could finish university with is mostly irrelevant: what matters is how much you’ll pay back. And what you pay back depends on what you earn after university.
Those who do the best repay a lot (their degree has possibly aided them a lot), and those who don’t gain too much financially from university repay the least. So if you come out of uni and earn less than £21,000 you won’t pay a penny back, and this threshold should be increasing to £25,000 in April. The system’s designed so that, in the main, those who gain the most financially from university contribute the most. Most people will never fully repay what they borrowed (plus the interest), so this £50,000 talk is irrelevant. If you do manage to repay it all, then congrats – you’re probably minted.
Unless you’re a higher earner, higher debt won’t make a difference
When you’re earning over £25,000 (which will soon be the new threshold) the repayment will come out of your salary before you get it, so you’ll hardly even notice it – it’s only 9% of what you earn over the threshold. Whatever your tuition fees (and maintenance loan), you’ll be paying back the same amount per year. Obviously the more you borrow, the longer you’ll be repaying, but as noted already most people won’t finish repaying in 30 years, so unless you’re a higher earner, higher debt won’t make a difference.
Martin Lewis has emphasised the irrelevance of student loans numerous times, showing us not to worry:
Scenario 1: Student debt £20,000. You earn £31,000. As you repay 9% of everything above £21,000 your annual repayment is £900
Scenario 2: Student debt £50,000. You earn £31,000. You repay 9% of everything above £21,00 your annual repayment is £900
Scenario 3: Student debt £1 billion. You earn £31,000. You repay 9% of everything above £21,000, so how much do you repay? You guessed it: £900
Stop making such a big deal out of student debt
The amount of student debt you have is mostly irrelevant, you’ll pay back the same amount with the only difference being whether you finish repaying it within 30 years or not. So stop making such a big deal out of it.
Tuition fees dominate our news and elections, and what a party is going to do about them is sometimes used to exploit the younger generation’s vote. But it shouldn’t dictate your vote! Don’t let your vote and opinion be dictated by media headlines and rubbish about ‘crippling student debt’ and definitely don’t lap up everything a politician tells you.
And don’t panic and try to repay your debt early or upfront, because that’s likely to leave you worse off (give it a google). Your student loan isn’t really debt, think of your repayments as a student contribution instead, and relax.