You can’t open a newspaper at the moment without seeing a headline about the rise in university tuition fees and the impact this will have on student debt. With far more universities than the Government originally anticipated planning to charge the maximum £9,000 per annum fees, thousands of students are going to finish their education with significant levels of debt.

The new student loan regime is due to come into force in 2012. Very simply, here’s how it will work:

  • Repayments don’t start until someone is earning £21,000 per annum. They then pay 9% of any earnings over that amount – so a graduate earning £25,000 will pay £30 per month; one earning £40,000 will pay £142.50 per month
  • Interest is charged at RPI, or RPI plus 3%, depending on earnings
  • If the loan isn’t repaid after 30 years, it’s written off

Initially, that sounds perfectly acceptable – £25,000 is a reasonable starting level for a graduate, and £30 per month doesn’t sound much. The problem is, there’s a very real potential for the debt to increase, even if the graduate makes the contractual payments.

Let’s say someone leaves university with £40,000 of debt. If they’re earning £40,000 per annum, their repayments will be the £142.50 per month mentioned above. But if inflation is 3%, the graduate will be paying interest at 6%. So on £40,000 of debt they’ll be paying £2,400 a year, which means the debt will be increasing at £57.50 per month.

It’s important that you understand these figures if you are planning to help your children through university, or if you simply want to make sure that they are as well informed as possible. Despite the warm words of the Government, the BBC has estimated that some graduates could be paying back over £80,000 on their student loans – and for many, the simple fact is that the loan will never be repaid and will turn into a graduate tax, payable for thirty years.

Contact us now, and we’ll be happy to discuss the implications of these new proposals with you.