Student loans & broke graduates

I’m amazed at news that around a third of graduates who took out student loans are still not paying them back.  The payback threshold is £15,000.  So there are around 400,000 graduates out there with loans, earning less than £15,000 a year.

photo by svilen001

photo by svilen001

As I’ve said before, university isn’t just about the piece of paper at the end of three years to help you find the perfect job.  Neither is it an excuse to have fun and forget the ‘real world’ for a bit longer.  Higher Education is full of opportunity, but you have to be ready to find it and to take it.  It doesn’t always come to you.  Without some conviction on your part, it’s easy for the university dream to fall apart and come to nothing.

That said, I’m still truly amazed that so many graduates are still earning lower than the £15,000 a year required before the student loan begins to be paid off.  I dread to think how much interest is piling up as the years go by (more on that below).

To make real sense of the data, we need more than the numbers.  A third of graduates who have taken out a loan sounds incredibly high.  But would it make more sense if the figures were broken down by each university, the degree taken, the grade each student received…?

Far less surprising to me was NUS President Wes Streeting‘s mention of a graduate with £12,000 in loans to pay off.  In one year, the graduate paid £650 on loan repayments, just to find that £580 of that was just interest payment.  That leaves a paltry £70 off the original debt.  Chipping £70 a year off a £12,000 (or, worse, £20,000) loan is madness, but I’m used to that myself.

I’ve been paying my debt off and it feels like I’ve achieved precious little.  I don’t notice the money coming out of my pay packet, sure, but I wish more of the money went toward the actual payment.  When you consider that you start paying interest as soon as the loan hits your bank account, your final account balance will be higher than the amount you borrowed, even if you pay it all back pretty sharpish.

Student loans are adjusted by the Retail Prices Index (RPI), but the interest rate isn’t based on an average RPI over the year; it’s whatever the RPI stands at every March.  Last year, the RPI was at an unusually high level in March (4.8%), so interest on loans was also high.

I’m now antsy to pay back my loan more quickly, despite what the brilliant Martin Lewis may say

Do you think I’m right or wrong in wanting to try and pay the debt back more quickly?