Student finance debunked – tuition fee rises – is it worth it? | UK base rate cut (mortgage & savings)
en
November 07, 2024
TLDR: Martin Lewis discusses increase in tuition fees and advice for affected students, provides insight on regretful impulsive purchases (Tell Us segment), and addresses a special Mastermind about floral shirts for Adrian.

In this insightful episode of the Martin Lewis Podcast, Martin Lewis, alongside Adrian Childs, tackles the crucial topic of rising tuition fees in England, alongside recent changes in interest rates affecting mortgages and savings. Let’s break down the key points discussed in this episode, providing valuable takeaways for students, parents, and anyone interested in the intricacies of student finance.
Understanding the Tuition Fee Increase
Key Changes
- Tuition Fees Rising: From the next academic year, tuition fees for English students will rise to £9,535, a £285 increase which is the first rise in eight years.
- Maintenance Loans Increase: Students will also see a corresponding rise in maintenance loans, which are tied to inflation rates.
- For students starting in 2025, the full annual loan is £8,877 if living at home, £10,544 if living away, and £13,762 if in London.
Impact on Students and Parents
- Loan Repayment Structure: Current students repay 9% of earnings above £25,000. If you earn less, you don't repay, making it more like a graduate tax.
- Parental Contribution: The system assumes parents will contribute more if they have higher incomes, effectively affecting the living loans offered.
- What You Borrow vs. What You Pay: Amount borrowed is often irrelevant to actual repayments, which depend on income after graduation.
Considerations on Graduates' Repayments
- Most graduates will pay back their loans over 40 years or until the loan is cleared, meaning many will effectively pay throughout their working lives.
- Higher Earners Affected More: The tuition fee hike will impact mid to high earners more significantly than lower income earners, who will continue to pay the same due to the fixed repayment threshold.
The Truth About Student Loans
Student Loan System Explained
- Understanding Loans vs. Debts: The podcast emphasizes that student loans function differently from traditional debts; repayments are income-contingent and adjusted based on what graduates earn.
- Government Funding Shift: Changes made in 2023 shifted more cost responsibility from the state to the individual, reducing the state's contribution.
Why Grant and Loan Structures Matter
- Variable Support: The amount students receive in loans is based on income, which means families with higher earnings will help less, significantly affecting lower-earning households.
- Long-Term Repayment Implications: With these shifts, many graduates will never seemingly repay their debt, especially given potential future economic fluctuations.
Interest Rate Changes and Their Effects on Finances
Recent Bank of England Decisions
- Base Rate Cut: The Bank of England has recently lowered the base rate by 0.25%, impacting mortgage rates and savings across the board.
- Mortgage Holders: Tracker or variable rate mortgages will see slight reductions in monthly repayments.
- Savings Accounts: Expect rates in variable and easy access accounts to drop, limited savings options will also respond to these changes.
Mortgage Insights
- Impact on Fixed Rate Mortgages: Those on fixed rates won’t see immediate changes, but they may benefit from better rates once their terms end.
- Advice on Chunking Loans: It’s crucial for borrowers to not rush decisions and to evaluate potential savings before committing to a new mortgage plan.
Conclusion: Should You Still Pursue Higher Education?
Final Thoughts from Martin Lewis
- Carefully Weighing Options: Students considering university should evaluate whether the debt is worth the prospective earnings and career opportunities.
- Real Costs vs. Perceived Burdens: Understanding the true nature of student loans, their repayment structures, and potential career benefits is essential for making informed decisions about pursuing higher education.
- Unique Position of Debt: Unlike conventional debts, the repayment system provides a cushion against financial hardships, curbing concern about public perception of 'debt' in traditional terms.
Call to Action for Listeners
As the podcast wraps up, Martin invites listeners to consider their own financial situations and the value of education while navigating through the nuances of student finance in today’s economy.
This episode is a must-listen for anyone involved in student finance discussions. It highlights the complexities of the funding system and presents clear advice and insights on navigating these changes effectively.
Whether you're a prospective student, a parent trying to prepare for your child's education, or simply interested in personal finance, understanding these dynamics can help ensure more informed, confident decisions.
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Hello I'm Martin Lewis and this is the cunningly named the Martin Lewis podcast. I do wonder what that's going to be about. Usually much of it comes from my BBC Radio 5 live show with Adrian Childs but there's bonus money saving tips just for you lucky lucky podcast listeners. In today's pod,
News this week that tuition fees are due to go up in England next year as are maintenance loans. So while I want to decode what this really means for the cost of university, how the university system works, is it still affordable? Should you still go? Do parents have to contribute? And why it's better to think of it as an extra tax? Not cheap, but an extra tax rather than a loan and so much more.
We'll also be talking about the fact interest rates have been cut by 0.25% points and a quick run through of what this means for mortgage holders and savers. And this week's tellers, what's the worst impulse buy you've ever made? Hamsters, campervans, 20p pieces and whims all come up. Play the theme tune.
What should we do interest rates? Let's do interest rates. They've just calmed down. What's your take on that? Well, this is highly unsurprising. Right. I mean, before the budget, it was the market moves was effectively predicting a 95% chance they'll come down after the budget. It was an 80% chance they'd come down by a quarter of a percentage point. They have them come down by a quarter of a percentage point. It's an eight to one vote. That's a huge, huge majority. So what does this mean in practice? Well,
For mortgage holders, if you are on a tracker mortgage, your rate will drop by 0.25 percentage points. If you're on a variable or discount rate mortgage, it will probably drop by around 0.25 percentage points, but they don't have to move it exactly. They can move it at their whim.
on their whim based on competitive reasons. Now, that equates to about on a typical repayment mortgage, and it really does depend how much you've got, but let's just say very rough rule of thumb, a saving of £15 per month per £100,000 of mortgage, £15 per month per £100,000 of mortgage.
If you're on a fixed rate mortgage, clearly the rate is fixed, so your rate won't move, but it does mean when you come off the end of that fix, you may then be moving to a cheaper rate than you would have done otherwise. If you're looking to get a fixed rate mortgage, the rate at which fix is a set do move.
But they tend not to move directly with the Bank of England base rate. They move on the market's prediction of long-term interest rates. So while you might expect the rate at which you could fix to drop slightly in the next few weeks,
Much of this quarter of a percent cut has already been baked into that. So I doubt we'll see the full quarter of a percent come down. What was probably more interesting was that in the statement from the Bank of England, it was noted that we expect to see interest rates come down further in the long run slowly. Now, again, the markets pre-budget were looking at a drop of around one and a quarter percentage point, according to nationwide. This is
over the next 12 months. So over the next 12 months, you would have expected to go down to 3.75% after the budget. They were looking at a drop of around 1% over the next 12 months. So really those fixed rates will depend on how the markets perceive the UK economy
It's interrelation with the US economy, which has, of course, all changed. So we are in a little bit of flux at the moment, but I wouldn't be expecting to see too many radical moves. And that's mirrored in savings. If you've got savings accounts, the variable accounts, the easy access accounts, expect them to drop by around a quarter of a percentage point. Over the next few weeks, you'll be given notice. Maybe the best buys won't quite drop by that much because it's been very competitive in the last few weeks. So they might get dropped by 0.15 percentage points. And if you've got fixed rate savings, well, they're fixed.
which you can fix mirrors what's going on with mortgages. It's all on long-term predictions of interest rates. Are there any rules governing how quickly rates have got to go? The floating rates have got to go up and down after a decision like this, because if you're the mortgage lender,
There's a huge amount of money it's done. Well, trucker squillions, then that... Trucker rates move pretty quickly, variable and discount a little more slowly because a trucker, you're pre-notified, it'll move with the Bank of England base rate. Same with savings. Savings are the rule is they have to give you reasonable notice, which tends to be between seven and 30 days of your savings dropping. Reasonable notice, but it is a reasonable clause. So, I mean, doing it the next day probably is too sweet, but if it's an online account and you're notified with a week, it's probably arguable that that's reasonable. So, I mean,
depending on the product and exactly what type you've got, those rates that are variable, if they're dropping, will be dropping somewhere between the next couple of days and the next month. Somebody must have tracked for savers when rates are going up. The bank rate is going up. Then the savers rates go up much more slowly than they come down. I would have told
Well, the more interesting question is the differential between when loan rates go down and when savings rates go down and when loan rates go up and when savings rates goes up, which are quicker. I have not done that piece of research. OK. OK. Just a thought. When you say quim, there's a way of bugging me when people would go, quill. You often hear it on BBC Radio 4. Quill. People speaking very clearly. But that's just wrong because it puts the H before the W. If you're going to say it properly, buy that.
Logic, you'd go, we'll heal. Or we'll him. I would like to say I would normally say whim, but I'm just enjoying whim today. So I'm going to keep saying it, not due to correctness or accuracy, but out of a little frision, it gives me this time I meant the words come out to me now. OK, what else have we... I thought we had questions on interest rates.
didn't we? Have you lost your question panel? Your panel's not working. No, I've got all excited about... I've got all excited about... The wheels have come off. The wheels have come off. Yes, they're always loose and they have come off. So, Alex says, well, we've kind of answered this. The turnaround time for lenders to realise these rate changes and reduce theirs. We do renewal on 1st of December, so not much time between now and then. I think you've
Well, again, renewal is about fixed rates. So I presume I'm guessing that your renewal will be to a new fixed rate. And yes, we will likely see moves in the rate at which fixes are set between now and December. But if you've booked in your mortgage, it should not change. I mean, it depends where you are in the process. Talk to your mortgage broker.
James, good question. Obviously, you want them to come down. Yes. If you haven't booked it in, or even if you have booked it in, if rates got cheaper, you might be able to just forgo the administration card charge and go to a new cheaper mortgage, in which case you would have to factor in if it's worth for going the administration charge because the saving on the new cheaper mortgage is better for you. Talk to your mortgage broker.
James says I'm currently re-mortgage in another fixed mortgage approved, though it's not due to start until March. Will I still be able to switch to a cheaper rate if they change in the meantime?
You don't have to take the mortgage, generally. One of the tricks I've been advising when rates have been going up is to book in a mortgage a long time in advance. Sometimes you have to pay a fee for booking it in or an administration charge for booking it in, which you can then let go of and pay if things then get cheaper on the other end.
The question here is what have you paid and what is refundable at this point? I mean, they can't force you to take up that mortgage, but they may be able to keep some of the fees that you've paid. I don't know the exact situation that's going on in there, but it's absolutely worth looking at if we were to see a big drop in rates by next March at the rate at which you could fix that, fix that, which is quite possible with the mood music at the moment, although one doesn't know how much the Bank of England have factored in what might happen in the United States.
because their meeting was before, it's a two-day meeting and the United States election happened halfway through that. But currently they're saying rates will go down, that's possible and that's something you should be keeping an eye on. Whether you've got the flexibility and freedom once you've gone in, how much you're going to lose if you then decide to ditch the mortgage that you've booked.
and go for a new one. Might it not have been an idea to delay the meeting until after the... Oh, it's fixed in our time. What other countries elections do we delay the meetings for? You know, what are the actions... But I'm married and saw a bit bigger, isn't it? Well, it's because Trump won. Donald Trump is the new going to be the 47th president of the USA, and he has... He says his favourite word is tariff.
And that, of course, has a big impact on the world economy. So I think if the Bank of England had done that, I think you would have many people arguing that it was some type of political signal that they should not be doing and getting involved in overseas elections. I mean, this is all going to play out. Remember, Trump isn't going to be the president until next January.
Now, before I get into the chat about student finance with Adrian, I just want to give you my five quick points everybody needs to know about student finance. We're going to go into all of these in more details throughout the podcast. But I think a little bit of summary at the start might just help you digest what is to come.
Point number one, the student loan price tag can be 60,000, but that is not what you pay. What you pay is all based on what you earn once you leave university. Current English students will repay 9% of everything earned above £25,000. If you earn less than £25,000, you will not repay in that year. The more you earn, the more you repay in a year.
Point number two, there is an implied amount most parents are meant to contribute. The living loan as applies in England and the living loan and grants in Northern Ireland and Scotland, the total amount you get is dictated by a means test of household income, a proxy for residual income. So, the more your parents earn, the less the living loan that you get is.
effectively meaning there is an implied parental contribution in the system. Point number three, the amount you borrow is mostly irrelevant day to day. In fact, repayments work more like a tax. Remember, you repay 9% of everything you earn above £25,000 a year on the new system and you will do that for 40 years
or until what you have borrowed is repaid. Now for many people, you'll just pay for 40 years. So in reality, this is like having a 9% additional tax over £25,000 and additional income tax on all earnings because it's paid through the payroll anyway. Only those who've either borrowed less
or are earning more and therefore would clear within the 40 years for current students, 30 years for many previous students, will actually see the loan ever end within the time period. For them, how much you borrow has an effect? Because if you borrow less, you'll clear it quicker and you'll stop paying. But for many people, you're just going to repay for the full 40 years your whole working life, regardless of if you borrow more or not. Which is why, as I'll explain in a moment, increasing tuition fees won't affect many low or middle earners.
Number five, the system canon has changed. Student loan terms should be locked into law, so only an act of parliament can negatively change them once you've started uni, but they're not. When we did a few years ago, see a bad change imposed, though thankfully after much campaigning and I threatened lawyers on it, it was overturned.
Much of the past changes were about the repayment thresholds, the £25,000 at which you will start to repay rather than bigger structural issues. And I would view the repayment threshold as variable. The rest, I would be surprised if they changed it once you start to university, that it could change a different system for people who start after you. But nothing is impossible because Parliament is what's called omnipompetent. Anyway, that's my quick summary. Let's go into all of that with a lot more detail. Here's Adrian.
tuition fees then. Talk us through this. So we had this announcement earlier in the week that tuition fees are going to rise 285 pounds from the next academic year for English students, taking the maximum to 9,535 pounds and pretty much all courses charge the maximum. The idea that tuition fees would put a market
in student finance, David Willett's big idea, super brain Willett's never worked. It has always, always been at the maximum, so the market idea and concept hasn't worked. At the same time we've seen maintenance loan, the amount of loans that students get to live off at university increased also with inflation by 3.1%. The exact amounts for that do depend on
your exact situation. So just for example, for 2025 starters, the full annual loan is £8,877 if at home, £10,544 if away from home and £13,762 if away from home in London. Although those are means tested as I'm sure we will come on to later.
So let's take each of these in turn. Tuition fees. Look, people won't like what I'm about to say, but there is truth in it. Tuition fees have not gone up for eight years. Universities have been starved of funding. They have been primarily subsidizing. Many have been primarily subsidizing UK students' fees with overseas students' fees.
a change in immigration last year meant that overseas students could not bring their partners with them with seeing a drop in overseas students. And that means there is talk of a number of major universities finances being so tough they are on the brink of going bust. We may need to see mergers. And what everybody needs to understand is there's all this sort of, and now we pay them, universities have always got money from the state.
It used to be a grant and then, or a number of different grants, I'm simplifying, and then it was turned into part-grant part tuition fees, and then it was moved into tuition fees. Now, the state used to give all the money, and now what happens is the state gives the money through the student loan company, but then expects students to repay it back once they leave university.
But because we now have this system that's linked directly to students, there becomes this political imperative that if you put it up, you're charging individuals more so you can't put it up, which is why they haven't gone up for eight years. And all we've actually had this year is what universities were effectively used to be promised, which was an inflation rate rise in tuition fees. It's only gone up roughly in line with inflation at 3.1%. Now, the reason I'm saying
You know, there's been a lot of anger about this. It's the little frustration from someone like me who looks at the system. In 2023, the then-government, the conservative government, changed the way student finance in England works.
which was a seismic earthquake size changed in the way it impacts how much you pay afterwards. It increased the cost for a typical graduate of going to university by 50%. But it wasn't talked about because they did it by changing the repayment terms that people don't understand, what they did to keep it nice and simple.
is they said you're going to start repaying when you earn less, so you'll repay more because if you're repaying 2,000 pounds less, the threshold went from 27,300 to 25,000. So that's an extra 9% of 2,400 pounds that you will repay a year if you're over the threshold. And instead of repaying for 30 years, you'll repay for 40 years.
Now the impact of that change, they did also cut interest rates down to that you pay on loans down to the level of inflation. The impact of that change was to increase the cost by about 50% to change the state contribution from 44p in the pound to 19p in the pound towards the cost of higher education for students.
But there wasn't much fuss made. Now this week we hear tuition fees are going up by 285 quid with inflation and there's, oh, it's uproar. Now I get the whole political issue about what's being promised and what's not. But in practical terms, increasing tuition fees will, A, not change what
graduates repay once they leave university in a year because what you repay is based solely on what you earn and if your earnings are the same you'll repay the same no matter what you owe. What it will do is it will change if you can repay in full over the 40 years or not. Now more students under the current system will
But to make it very simple, the people who will pay more because tuition fees have gone up and it's only a percent or so or a percent or two more are
Mid-high to higher earning graduates. Low to middle earning graduates will not repay any more because tuition fees have gone up because they're just going to repay for 40 years at 9% above the threshold. They're going to pay for the whole 40 years and then the loan wipes. So this change in tuition fees only impacts mid-high to higher earning graduates. And I need to be very careful because I heard somebody on a TV program the other day, he was quoting me wrongly. They were talking about
people from richer backgrounds and poorer backgrounds. When we talk about student finance, the finance you get going in depends on the affluence of your family. So a richer background gets less student support than someone from a poorer background. What you repay depends on what you earn after university. So you can have some from a poor background who earns a lot after university and someone from a rich background who doesn't earn a lot after university. And we can't confuse those two. I've probably gone too complicated.
But just to be clear, the stuff you said that changed, was it in last year? For starters, in 2023, beyond. That remains now. So absolutely. But the big change was that not changing tuition fees. And people have asked me, do these tuition fee rises apply for continuing students? Yes, they do. So do the maintenance loan rises. OK. So you're right. We have got a lot to get to. It's my fault for faffing around somewhat earlier. But so the student loan can be
say it can be 60,000. It can, but that's not what you pay. No, it isn't. It isn't. The student loan price tag is basically your tuition fee loans added up and the maintenance loans added up over your three or four year course and focused on in England at the moment because that's the one that's changed. Now you repay
if you earn over £25,000 a year after you graduate and you repay 9% of that. So let me give you my very simple explanation, Adrian, it's going to be a test, but I think it's a test that you are able to pass here. You are a graduate earning £30,000, you repay 9% of everything above £25,000 and you owe £20,000. How much will you repay in a year?
Say that again. Sorry. I've got. You earn 30 grand. Yeah. You owe 20 grand. How much do you repay? And the repayment is 9% of everything above 25,000. So how much above 25,000? Are you? You weren't. Oh, look, 5,000. And you were a 9% of 5,000 is 450. Perfect. And so you owe 20,000. You repay 450 pounds a year. OK. Now you earn 30,000. Same amount. Yeah.
Oh, 50,000. How much do we pay in a year? I can't... Four times. Five times more than I just said. You earn? Yeah. 30,000. Oh, right. Sorry, yes. How much above the threshold is that? 5,000. And what's 9% to 5,000? 450.
How much do you repay? 450. Because it's only your earnings that dictate what you repay each year. The fact that you owe 50,000 is irrelevant. Adrian, they have put tuition fees up to a million pounds a year. You owe three million and 20,000 pounds when I include the maintenance... 450 is the answer. 450 is the answer. That mass was to prove the point to everybody that the most important thing that dictates what you repay each year
is what you earn. Can that be changed though? Yes, the threshold can be changed. It's a really important question that we go on. Parliament is on the competent. It can always change anything and it can change it retrospectively. So there is never any certainty that nothing can change. If I look at the history of student loans, one of the things I've asked and written to the government about in the past is they should be more upfront about what is effectively fixed and what is effectively variable.
Things that are variable are things that can change once you've started your university. So I'm not talking about changing the system for future students. I'm talking about changing the system for students who've got it. They've tried to change repayment thresholds in the past.
in a negative retrospective way. Putting them up with average earnings is what's always expected. They try to drop them substantially in the past for existing students. I tried to take them to judicial review. That was overturned. But thresholds of repayments can change. How long you repay for I think would be more difficult for them to change. It's not impossible. I think that as only we've only ever seen that change for new students. We've never seen it change retrospectively for existing students. So I think the repayment threshold and the percentage you repay at
Repayment threshold is variable. The percentage you repay at and how long you repay for are things they have never changed retrospectively and I would be surprised and very angry if they did. The threshold at which you repay I think could change. I don't worry, there's lots more on student finance in a bit. Tell us what the worst impulse buy you've ever made is. What's yours? I don't buy an impulse, Adrian. At least that's what my brand notes say.
But, you know, I bought something on impulse on your recommendation. We talked about it on air. It was your... No, no, that was based on detailed, detailed research by trusted colleagues. True. But that's always, that's not the definition of impulse. The definition of an impulse is seeing something, not knowing you wanted it, not having done your research, check your value, got any recommendations, and just going and getting it on a whim. On a whim.
You didn't do it on a whim. You did it based on, I like that word, you did it based on, you know, integral detailed recommendation from a trusted third party, which means... Okay, yes, that was you. If you wonder what it was, people, it's a little vegetable chop, it costs about 10 quid. It's not like he's got him, you know, invested a Caitrillion pounds in an ISA. But it's very satisfying because it's not electric. You pull it with a mechanism like a starter mode, drawing an outboard engine, which I find curiously, curiously fulfilling.
Jill, a gaming chair for us. What does a gaming chair look like? I believe that's one of those big chairs with sound on the side and maybe even vibrates who knows when you're playing a game and gives you your haptic feedback and moves and all this type of stuff. OK, well, I'm sorry to report, it's never been used or sat upon and now just collects his clothes. Well, at least he's putting his clothes on there, not just slinging them on. I quite like Hannah's. Go on. My husband bought a boat which had no engine.
and a hole in it. It was on the Kent coast. We live in Cumbria and had no way of getting it almost 300 miles home. But this is missing the impulse. I want the impulse factor from you, Vicki. I bought a bin in the John Lewis sale, reduced from 120 quid to 35 quid. But you needed to spend 45 pounds to get free delivery. So I impulsively added a 350 pound bean to a coffee cup machine to my order, bean to cup coffee machine to my order.
I've been looking for one and I did check it was the best price around before riding. Best thing I've ever bought though. I rarely drink coffee out of the house now. But no, okay Vicki, we're looking at the worst impulse bar. Yes, we weren't clear. We weren't in the terms of... They weren't in the terms of... They were. They were. They were. I shall reach you. Oh, okay. I'm not going to walk you. Tell us what's the worst impulse purchase you've ever made. Why did you buy it and why was it so bad? I'm going to have a word, Matt.
who's out there, who is the person who compiles these. Matt, we need some impulse ones. They need to be, did you buy them on impulse? Why did you get it suddenly? What do you regret? There's one on Twitter from a former personal finance journalist, I think that works in PR, who was right at the top James, his name is. I liked his very much. Can you get me that one? Shall we do student finance while those are all being compiled?
OK, let's let's do what actually I'm just going to give you three and where they qualify by our new impulse rules. My PS5 Pro arrived it to arrive today. Don't need it, but need it.
What we don't know what is thought process. What we have is it was an impulse buy, but we don't yet know if it was a bad impulse buy. If we think of a PS5 Pro as a piece of entertainment and you're going to get hundreds or thousands of hours of use out of it, then as an entertainment mechanism, that doesn't make it a bad impulse buy.
I am not against people buying things that makes them happy as long as they can afford it and they're budgeted for it, etc. What I want is things that you've bought that you've just gone, this was useless. Why on earth did I buy it? You know, this tends to happen late at night when people have been out for the evening. Yes, and the Amazon stuff is a real vector for it because you can...
You know, there ought to be a call-in-off period, haven't there, when I wake up in the morning function, when you see what you've ordered? Christine, three chickens cost 60 quid, ended up having to spend another 600 pounds on their accommodation. Then there was the... I'm chickens, we're talking about, yeah. Then there was the avi... We don't need accommodation for dead ones, Adrian.
Then there was the avian flu bird locked down so they needed to be inside under cover. That was another 400 quid. Then they all stopped laying eggs. Vet bills then followed, now standing at 700 pounds in total. Two died, so had one on its own, so bought two friends to keep it company. Then that one died.
OK, it's not a very jolly tale, is it? I think we should do student finance. I've got a lot to do on student finance. It's likely we're going to run out of time. OK. Actually, I'm going to just give you one. Oh, James, while watching TV, I saw a character and a sword on the wall of their flat. And I thought, wait, can you just buy a sword? You can, I did. And I'm forever grateful HSBC blocked my 2am online purchase as suspicious activity.
And that is from a former personal finance journalist. Oh, is that the one? That's the one. That's the fella. Sword man. That's always going to be James. You're now sword man. The sword man. The sword mister. And that's not the end of the tellers. There's more of your. What did you buy on a whim coming up? Loads of stuff coming in on student loads. Matthew wants to know what happens when you can't pay it back. Who ends up covering it?
This is a very interesting question because the answer is the state ends up covering it. But I go back to the original point before we had tuition loans, the state covered everything. Now, what a lot of people get in touch and they say, well, you know, if the state, if someone has a degree that they don't pay back in full, therefore it must be a wasted degree because they haven't managed to pay it back.
And I think that is often a fundamental misunderstanding of the student finance system. The student finance system is set up to be if you like a no win, no fee system based on financial success. If you financially succeed on the back of university, you have to contribute towards the cost of it. If you don't financially succeed on the back of university, then you're meant to contribute less towards it. Now, the reason, the judgment of whether you pay off in full or not,
is irrelevant to whether your degree was financially worth it, is because whether you pay off in full or not is solely a function of how much revenue the government wants to raise, not a function of the value of the degree. So let's see if we can work this through together, Adrian. If I were in charge of student loans, the interest rate is currently based at the rate of inflation, and I dropped the interest rate to 0%, rather than based on the rate of inflation,
Would more or less people pay it off in full if the interest rate was lower? Oh, God, I'm being overstate, is it? I've made it. Is it the same? No, more people would repair it in full. I've dropped the interest rate. Therefore, the loan isn't growing as quickly because the loan is smaller, more people would clear it in full in the 40 years before it wiped on the current previous system, 30 years.
So if I drop the interest rates, more people repay in full, would the government gain more or less money? With a lower interest rate? Less. So the charging less interest, the state would rack in less money, but more people would clear in full. Now let's do the reverse and go to an absurd level. Let's increase the interest rate to 100%.
Would more or less people clear in fall if I had 100% interest rates? Less. Less. I mean, probably only Mark Zuckerberg and Elon Musk would clear in fall. Everybody else would just repay for 40 years. They'd find a way. They're not paying us anyway. Well, try. Everyone else would be paid for 40 years at 9% of their income. It would become effectively a tax, an additional tax of 9% above your income if you increased interest rates to 100%. Would the state rack in more or less money with 100% interest rates?
Well, in theory, more. Well, certainly more, absolutely more, unquestionably more, because everybody would just pay 9% of their earnings above a threshold for 40 years. No one would clear it. So my point on answering this question is, how much is repaid
is simply a function of how much money the government wants to get back. You can do that by changing the repayment length, you can do that by changing the threshold. It is not a function of the value of a degree. So going to your question, who pays if the student doesn't? That is based on this idea that there's some actual cost of your university, rather than this is a funding mechanism, a complex funding mechanism, which is what it is. So the answer is, it's really about how much money the state wants to bring in, and the change is to 2023.
went from, as I said earlier, it was before 2023. 44p in the pound towards undergraduate degree cost was paid by the state. 56p in the pound was paid by the individual graduate. The 2023 changes made 19p in the pound. It's estimated will be paid by the state. 81p in the pound will be paid by the individual graduate.
None of this is a function of who pays or who doesn't. It's just a question of where you shift the pendulum to who's contributing what. But the state's cost, that still isn't the state's cost, because that's based on the interest rate they choose to set, not on the government's cost of borrowing. So it's a really complicated piece of finance. But they must have implications. They must.
There must be projections for how much is never going to get paid back. My point is how much is never paid back is a function of how you set up the final. No, no, I understand that. It's a separate problem. We don't need to get into it. A chicken's going to come home to roost at some stage.
No, because this is an arbitrary amount of money. The amount you pay back is a function of the interest rate. Again, if I set it to 100% interest rates, nothing would be paid back, but the state would rack in a lot more money and would be much better off. The idea that you can measure the success of the system by how much is paid back is false. That's just a function of the way you choose to set up your finances. That's why I'm trying to debunk here. Lots of people think that
But it doesn't work that way. It's complicated economics. It's not as simple as I haven't paid back so the state has to. No, because it's all involved in the interest rates and the threshold of the repayment and how you discount with inflation over time and the government's cost of borrowing. It's so much more complicated. Amanda is concerned. She has her daughters hoping to go university next year. I'm terrified how much we as a family are going to have to contribute to her living costs. She's hoping to study mental health nursing. I'm so proud of wanting to study this, but I'm not sure we can help her financially. What can we do?
Well, look, I think that is a valid worry. My concern about student finance is not about the tuition fees. Firstly, because unless you have a lot of money and your family has a lot of money and you choose not to take the tuition fee loan up front, tuition fees are not a cost to students. They're a cost for university leavers. You only start repaying nine months after you leave university. So it doesn't directly affect the student at university.
What does affect the student at university is the maintenance loan, the living loan that you get. Now I should state in England it's a loan. In Wales, Scotland and Northern Ireland it is a combination of a non-repairable bank grant and a loan.
So, only in England is it all funded by loan. And this is the real issue. Now, if you're a parent of a 10-year-old, forget tuition fees. What you need to focus on now is how much will I be expected to contribute to my child while they're at university?
There are two factors here. The first is the maintenance loan in England has been eroded substantially over the past five years because it has not gone up with inflation and that is a real problem especially for those who have come from the lowest income families who are reliant on the full loan because they
I'm not going to get enough to live off. I'm very pleased to see that the government has announced it's up rating living loans in line with inflation from the next academic year, but that will not catch us back to what we've lost. That will just mean we're not losing any more. But hey, better than nothing. But in practice, you're going to need.
Well, there's a second element here, and that is that the loan is means tested. The amount of maintenance loan you get is means tested based for most under 25s on what's called household income, which is a proxy for parental income. It's basically parents' income minus what they're contributing towards a pension, minus a very small amount if you have another dependent child.
Now, if you have parental income below £25,000, you get the full loan. If you have parental income above roughly, it depends whether you're living at home or away from home, whatever, roughly £60,000, you get the minimum loan, which is about half the full loan.
So what is the difference? In my view, the difference is an implicit but not explicit parental contribution. The only thing that is changing what your child gets to go to university is your income. So the state saying you have more income, you are able to support your child, therefore we're expecting you to support your child.
I finally, after about a decade of campaigning, finally got them to put a little note on this into the government documents, into the student loan company documents, which says parents can help by making up the difference, but that's what's like, of course, you can work, you can do other things. So the answer here, the first thing everyone needs to do, and there are parental loan calculators on the, parental contribution calculators on the internet, which will show you what your expected situation will be, is work out what loan you will get.
subtract that from the full loan, and that is the minimum expected parental contribution. It cannot be mandated. You're not forced to do it, but that is what you are expected to do. So even then, the full loan is not particularly generous. So there's a problem here for those on the lowest incomes that the state loan isn't enough. The real big problem here is those in the middle, those on 40, 50,000 pound total household earnings, who are going to be expected to contribute,
five grand a year towards their child while they're at university. Many people can't do that, so you might want to save up in advance. So what you need to do is work out what your parental contribution is. Parental contributions work as well in Scotland and Northern Ireland, where the total amount you get does change based on parental contribution, although the parental contributions are much smaller if you subtract the maximum you could get from what you're getting on a higher income. In Wales,
plored its to whales for this. All the parental contribution does is dictate how much you get is a grant and how much is a loan, but the total amount is all the same. So there is no, the parental assessment doesn't affect what the student gets. They all get the same. So effectively, there is no implied parental contribution, but all of these loans are pretty low. Even without a parental contribution, if you can, you're probably going to need to help them and they're going to need to work while at university.
Actually, Scott says, is it better financially to take the course loan and pay back over 40 years or pay ourselves with inheritance money that could be used towards a future home for my son?
This is a very common question. When we were on the previous Plan 2 loans, I was very robust that most people should be taking the loan. If we are looking purely at an individual's finances here, you need to make your own moral decisions over whether the state should fund, whether you should be doing this, if you can't fund. I'm not going to get into that. I'm just going to do the maths. Right. Under the new system,
Far more undergraduates, the new English system, are likely to repay in the 40 years. So that would say, maybe you shouldn't be taking it. But the interest rate has been lowered. The interest rate on the 2023 starter loans is set at the rate of inflation, which in economic terms means there's no real interest. To explain that to people,
If I borrowed, if my loan to go to university was the equivalent of a hundred shopping trolleys worth of goods, how much a hundred shopping trolleys worth as goods would cost? Because it goes up with inflation, I will only have to repay the cost of a hundred shopping trolleys worth of goods, whatever the actual pound amount of that is. So in terms of the purchasing power of having a loan is not eroding under the new system.
So if we look at the terms of the student loan, you only repay if you earn over a threshold. It's wiped after 40 years if you don't repay. You repay in proportion to income. It's paid through the payroll, so there are no debt collectors going to come to call. It does not go on your credit file. Structurally, this is the best form of debt you'll ever get. You'll never have a better form of debt. So my question would be, the first thing to look at is, are you likely to clear in full over the 40 years?
If you're going to be a higher earner, then that would push you more towards if you've got the money not taking the loan. My next question would be, are there any other uses of money that would be more efficient? Obvious ones that are more efficient are a deposit for a mortgage,
and having to prevent you from having other borrowing like credit cards and personal loans in future which have much worse terms will generally be more expensive but even if they're not more expensive have worse terms. If that is likely to happen then I would say you would be better to save the money towards that mortgage deposit and reducing the future mortgage than you would be clearing the student loan because it has the best possible terms. Now an easy halfway house here especially now there's no real rate of interest. Don't pay it off now.
Go to university. Take the very small hit of inflation rates of interest. It's going to be over the next few years, two or three percent. It's not going to be very high. When you finish university and you're in a much better position of understanding what your potential learnings are, because you might have gone to university wanting to work in the city and you might have left university wanting to be a beat poet traveling around the world, not earning anything. Once you have that idea, then you're always free to clear it at that point.
So you don't have to do it before you go to university. You could take the loan and make the decision afterwards if you chose to once you understand your earnings potential and whether you're likely to pay it off. But I would always prioritize putting money aside to prevent future other debt, including mortgage debt ahead of student loans, because it's the best form of debt you could get.
You were putting me on the spot with questions earlier. I was very poor at answering. Does that mean I get away with mastering Mastermind? No, we're still doing Mastermind. I know we've got more to do on student finance. Just to say, we'll go to Mastermind now. I will be going into carrying on with this when I do the podcast. So if you're interested in this, please download the podcast later and I'll be doing lots more Qs and As on that. OK. You sure you don't want to do another one? Play the theme tune, Adrian. Probably got time. Play the theme tune.
I covered myself in glory today. Okay. So the current mastermind score is Adrian has got two right in this and he's got three wrong, which is still better than even odds considering it's a three option multiple choice. You're better than a rank monkey picking randomly, which your predecessor, Nihal, wasn't. So you're still slightly ahead of where Nihal was, but you're degrading. You got the last three wrongs. I went two nil up, then I'm three, two, Dan.
Now, for those who don't know, the mastermind is a question where there's always a nice charming setup about Adrian to begin. So Adrian recently fell in love with the shirt, a lovely colourful floral shirt in a sale at his local kitsch store. He couldn't resist, grabbed it on impulse, thinking it would be perfect for work as an aside.
I've often thought when I come in here that Adrian, your voice and delivery doesn't fully get across to the listener how you actually look in the studio right now. I need to say, as he normal does, Adrian's always wearing floral print shirts on his upper body, often accompanied by glittery hot pants and dot market martens. OK. So you've been silly with the hot pants, but the rest of it is true.
OK, they're not glittery, just hot pants. I added the glittery bit. So I just want you always, when you listen to Adrian Future, to think of the floral shirt, the glittery hot pants, or just the normal hot pants, and a pair of dot martins with those long, luscious legs hanging out between the two.
What a lovely picture of the man you are, sir. Back to the floral shirt, anyway. You bought it in the sale smitten by swirling patterns of daisies, crocuses and chrysanthemums. You didn't take time to try it on. You took it home and unfortunately, let's just say, even for a slim fit lover like yourself, it was just a little bit too tight. Breath restricting. So you take it back to the shop and they say,
Sorry sir, you as our notice say, you should have noticed that we suspend our return rights during the sale.
My question, Adrian, are they legally allowed to suspend return rights during the sale? A, yes, within reason they can do what they like on return rights. B, no, your statutory rights overcome the return rights, so you've a right to a full refund if you take it back within 14 days. C, no, your statutory rights mean you have a right to a full refund if you take it back within 30 days. I would.
I'll go for B. I would hope the statute rights do override. 30 days seems a bit generous. No, I'm going to go for 30 days. I think it's C. So you think your statute rights mean you have 30 days in which to take this back and get a full refund? No, I've changed my mind. I think it's going to be 14 days. I got a B. You're going for B? Yeah. OK. Let's do this, shall we? So, Adrian, if you had bought the item online,
you have a 14 day right to notify them that you're sending it back, unless it's perishable or personalized, and 14 days after that in which to send it back. So you could have up to 28 days to send it back and to change your mind. But you did not buy this online. You bought this in your local store. If you buy an item in your local store,
And it is faulty. If you take it back within a calendar month or 30 days, faulty as a distinct from not fitting as as a distinct from actually faulty something that is not satisfactory quality, not or not fit for purpose, or didn't last a reasonable length of time, or wasn't as described.
then you have around 30 days in which to take it back for a full refund, take it back later if it was faulty, partial refund or replacement. But Adrian, there was nothing wrong with this shirt. You didn't try it on. I mean, one could argue that it was labelled a large and it wasn't a large and therefore it's faulty, but we're going to ignore that slight nuance. You took the shirt, it didn't fit you, you wanted to take it back.
You have absolutely no legal right to return goods that are not faulty. It is commonly misunderstood. Can we have the earth? It's a no. It's commonly misunderstood. Many people think they can. I've been in stores. I've been in shops and someone's having this argument. They've seen me and gone, ah, oh, it's my nose. I'm telling them. And I say, I'm so sorry, but the store is right. Now, if they have a published returns policy,
that says you can bring things back, then that's contractual and you can take it back. But this store had a sign saying no returns in the sales. You could have taken it back if it was faulty. You could have taken it back if it was bought online. But if they say, we're not giving you returns unless you stand on one leg, probably break discrimination rules, but we'll ignore that. You stand on one leg and you've got to receipt, then they're right. And if they say no returns at all, then they're right. They can't overrule it if it's faulty. So you have no return rights whatsoever. So in the future, when you're buying your floral
shirts mate, try them on first please.
John says could someone get in a situation where they never earn enough to clear the student loan but always earn enough to pay 9% extra income tax for 40 years? What would be the highest amount that someone could end up paying for their degree under this system?
Well, that all depends on interest rates. Certainly you could pay in monetary terms, not real terms, easily double or treble what you borrowed if UK inflation went very high. But in real terms, you will repay back what you borrowed. You asked me, could someone get in that situation? Absolutely they could. In fact, we can look at this if we could go through earnings. Now, people always say, you talk about low earners and middle earners and high earners. What do you mean? I can't give you numbers, I'm afraid. Because the problem is,
You could start off when you leave university on a low salary and then suddenly much later on be on huge amounts of money that would make your high earner or you could start on a medium salary and stay on the medium salary all of your life but it's all about you know factoring in the earnings do tend to go up over your working life most people in graduate careers and
The inflation means average earnings go up and prices all go up. So just conceptually, we're going to have to stick with low, medium and high. So let's go through all the different situations. You've got your 60,000 pounds of student debt. You leave and you are a very low earner. Well, you will never repay a penny because you will not earn over the threshold.
Now let's say you're a low to low middle earner. Well in your circumstance you might earn over the threshold at some point, so you will start to repay your loan, but you will probably not get close to repaying even the starting amount that you borrowed, even the £60,000.
As people's earnings go up and we start to move from mid to low to medium earners, then what you'll find is you may repay everything you initially borrowed but not repay any of the interest. Then we get from medium to mid high earners and you will repay everything you borrowed plus some of the interest.
but if you're not clearing it before it wipes, by definition, you will not repay all the interest that has been added to your loan. So many people focus on the interest that is added to their loan, absolutely, understandably, psychologically, but that is different to the interest that you repay. The only people who repay all the interest that's been added, and this applies both to current students and past students, is those who clear the debt in full
within the 40 years for current students, 30 years for past students before it wipes. That is the only circumstance in which you repay all the interest added. If you're someone who does not clear it in the 40 years, then the interest is less relevant to you, whatever the interest rate is, because you're not going to be repaying all of it. So there are huge panoply of circumstances here.
that affect exactly how much you pay, whether you just repay some capital or the capital, some capital and interest or all the interest. And it all depends on how much you earn. Did that make sense, Matt? Most certainly did. Have you?
Here's one from Polly. She's asking she wants to know why the level of which students pay their debt back is now at £25,000. She says this has gone down from other plans and importantly is a cat's whisker above minimum wage for a full-time worker. Second part of the question is parental contribution kicks in at £25,000. Again, this hasn't risen for years and therefore low paid households are expected to contribute. Is it really worth someone doing a degree these days to never get out of debt due to the high interest rates on those loans?
I think it's a really interesting question. Let's take those three points separately. First of all, you are right. The threshold has been dropped to £25,000. For those on Plan 2 loans, which is the English start as 2012 to 2022, you repay 9% of everything above £27,295. For those on these new Plan 5 loans, you repay 9% of everything above £25,000.
and that has a big difference and that was done so that the state is contributing less to the cost of higher education than it was previously. You then move on to the second point and you're quite right. The point at which you start to have to contribute as a parent has been stuck at £25,000 for a long time, which effectively means because we've had high inflation and average earnings have gone up,
Fewer and fewer people are eligible for the full loan, which is again saving the state money. I could live with that if the full loan was big enough and had gone up with inflation, but it hasn't been. And all of this for me, you are again right. I think has real questions for social mobility and the ability for people from lower income backgrounds to go on to university when those loans are too low.
So I'm afraid I can't explain why, apart from that's policy and it's saving the state money and putting the burden onto the individual. And they've swung the pendulum. I can't explain why. I can agree that it is an issue. Your third question, though, is really important.
Is it worth a student going to university with this higher cost? You say higher debt. I would argue in reality for most people, this is not a debt or not a traditional debt. It was only called a debt because Tony Blair, when he introduced the income contingent loan system,
wanted to had promised not to introduce new taxes, so framed it as a debt, so wasn't introducing new taxes. I think it is misnamed. Other countries wouldn't call our system when they have systems like ours a debt. They call it something more like a graduate contribution system. And I think we should rename it because it would help people think about it properly. You know, my biggest problem is people have this debt and they see that they think it's a debt and they see the interest being added.
and they think even if their long low earnings are not going to clear it, I should pay it because I don't want the interest to build up and counter logically that is the wrong way to think of it and some people are paying off money that they can ill afford to give to reduce the loan even though it won't save them any money in the long run because they'll just be paying effectively a 9% tax. So let's be really plain here. The fact that the cost has increased which is primarily because of the 2023 changes to going to university,
Does mean everybody should think far more carefully, is this right for me? I still believe if university is right for you, grab the opportunity. It can be life enhancing and often will lead to an increased earnings potential.
That's absolute graduates earn more than non-graduates on average and for many the degree pays for itself but not for everyone. So you need to look into the career, look into your aspirations and see whether you could do it with a degree or with an apprenticeship work or going into work earlier work.
I'm not saying everybody should get one, but we shouldn't not go to university. If the career you want involves going to university, then go for it. And even though it's going to be more expensive when you leave, do not let that put you off. But the reality for most people, and this is probably a good way to finish this program. If you've got more questions on student loans, we can always do them in the podcast in future weeks, get in touch with at Martin Lewis podcast at bbc.co.uk. But the reality for most people is this is what being a student does to you.
Currently, if you earn up to £12,570 in the UK, you don't pay any tax. That's the same for most graduates and non-graduates. Then, when you earn from £12,571 to £25,000, both graduates and non-graduates, and I'm going to say graduates, I mean people who've taken the loan, you pay 20% tax rate on everything above that £12,570. Then the change starts.
Once you earn £25,000 and on earnings up to £50,270, someone who has not gone to university, their effective income tax rate is 20%. Someone who has gone to university, your effective income tax rate is 29%, because you will be paying 9% towards repaying your student loan through the payroll or self-assessment if you are not a payroll payer.
When you earn £50,271 to £125,000, non-university goers, your effective income tax rate is 40%. We'll ignore the personal lands being taken away. That does affect it as well. University goers, it's 49%. And once you top rate £125,000, non-uniggoers, your income tax rate is 45%. Uniggoers, yours is 54%. But once you're earning that amount, you'll probably start to clear pretty quickly and your student loan will be wiped without that much more time.
So the reality is for most people who go to university you have to say the question you're asking yourself is I am going to pay 9% more tax above £25,000 if I go to university than if I don't go to university. Is it worth it for me? Is it worth it for me financially because I'm going to earn so much more? Is it worth it for me spiritually if you like because I'm going to go and get the job that I want to do? Is it worth it for me emotionally if you like because of the university experience and the mind broadening
experience that many people get when they go to university. I can't answer that but it is important you clinically assess whether it's right for you financially because if you do go to university unless you're from a very wealthy background who can afford to buy you a house and pay off your student loans then you are very likely to be paying for it for much of your working life but it can still be worth it even though you're going to have to do that.
Okay, and to change the tone now, let's just finish this podcast with a few more tellers. Remember the question, what's the worst impulse purchase you've ever made? Why did you buy it and why was it so bad? Matt, what have you got? I've got some absolutely brilliant ones here. I've got one here from Angie. She bought a dark blue jumpsuit about 20 years ago and then immediately realized I looked like a quick fit fitter.
Well, and so, yes, she dumped it quicker than the Quickfitter. You can't do it quicker than the Quickfitter. Anyways, that's not very, very good. Michelle went shopping for a coat for my daughter and came home with a hamster instead, 20 pounds for the hamster, 30 pounds for the hamster house. I'm sorry to hear that. Not bad. Hamster got a whole house. That's pretty good. There we are.
Yeah, I've got one here from Stuart. He said he saw in the window and purchased the first portable television from Harrods in 1985, which is a time I have never existed in. It cost £100 at the time. He couldn't really afford it. The screen was two inches wide and it was completely useless, so luckily he was able to get a full refund.
Deann. I sat at Deann. A camper van, second hand. Cost me £17,000, took all of my savings. I didn't get it damp checked. Kept it for a year, unable to dry it, never went out in it, sat on the drive, eventually got rid of it for £9,000, and £8,000 lost. I still cry about that loss. I really wanted to get an escape from my working week, pop off at weekends with my dogs to the coast. My dreams didn't come true that time.
Oh, Deann, that's really sad. I'm so sorry, because in a way it wasn't an impulse buy. It sounds like you'd planned to buy the campervan and that's what you wanted, but it was the specific not doing your due diligence and your checks on what you bought was the problem rather than the concept of the purchase itself. And I've just got one last one to finish, which is from Rob. Rob says, my wife hated my impulse purchase of an expensive revolving chair, but then she sat on it and eventually she came round.
Very good. Very, very good.
That's it for this week. I do hope you've enjoyed it. And please do tell friends who may have children who are going to university or people who are going off to university themselves to have a listen of this. There are so many misunderstandings around student finance. It's really important. If you do like the pod, then tell as many people to listen to it as we like. If you do like the pod, then do suggest other people listen to it. And you can of course subscribe. We put out a new podcast most Thursdays. I would be delighted if you joined me again. Bye bye.
Martin Lewis is the founder of moneysavingexpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing Martin Lewis Podcast at bbc.co.uk.
The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.
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