Student debt has been all over the news this past week and with rising inflation it is important to understand what the media is talking about and how does it affect you.
‘We need to be far more careful and far more accurate when discussing these issues.’ – Vivi Friedgut, CEO & Founder of Blackbullion
We asked our founder to explain what is going on:
Student debt and financial uncertainty lead to increased anxiety on students and when it comes to people’s futures, their aspirations and those tools we rely upon for social mobility incorrect comments by talking headlines on the news are not only unhelpful but downright destructive.
1. Cutting interest rates will help students?
A reduction in rates will make your graduating debt a tiny bit smaller (as it would reduce the interest applied while you are studying) but the way our student loan system works the only ones who will benefit, long term, from a rate cut will be the highest earners.
Someone on an average UK salary of £24,000 is paying an interest rate equivalent to inflation. A reduction in the interest being applied won’t make a scrap of difference to them but high earners will see a cut.
2. Is it actually inflation that’s driving up the interest rate?
Exactly. We’re seeing inflation start to tick upwards and THAT is what’s making the difference. A year ago the upper rate of student loan interest was 5% – today its 6.1%. (more on Inflation)
3. Will the interest rate make it harder to pay each month?
Nope, there is no impact. The total size of your debt will grow bigger, and faster, with increased interest rates, meaning it will take longer (if at all) to pay the debt back, but in terms of your monthly repayments, you will see no change.
4. Is this all politics?
True. The “youth” vote is being courted. There are 2.3m students in this country. That’s 5% of the total electorate so of course, everyone is selling unicorns and rainbows.
5. Are fees rising to cover VC salaries?
Nope. There have been loads of stories in the last few months about VC pay and it does all look a tad dodge. But student fees came in while government money was sucked out. Student fees cover the shortfall and even then there are lots of universities that are still running at a deficit
6. Is our system terrible?
Not really. It is a fact that English students now graduate with the highest per student debt in the world BUT unlike many other countries you pay nothing back till you’re earning and the debt is scrapped after 30 years. Students in the US can only dream of such a system
7. Should education be free?
Well yeah, we think everything should be free but truth is a world class education, which is what most students in this country enjoy, costs money. Just like everything else and this money comes from government and that money comes from taxation which comes from ordinary taxpayers. There’s no such thing as a free lunch (though if you can think of a better way to do this we’d love to hear from you!)
8. Is it worth having £50,000 student debt?
For some. Whether it’s worth it for you is a question only you can answer.
And for those of you who still don’t understand the fee system, let’s break down the key elements:
- You don’t pay back until you are earning over £21,000.
- When you cross the £21,000 threshold you start paying back 9% of your salary above that £21,000. That equals to 9p in every £1 REGARDLESS of the interest rate.
- Anything unpaid gets wiped off after 30 years.
The interest applied to the amount you owe depends on what you earn.
For full information about student loans, please visit Student Loans Company.