Students likely to still be repaying loans in their 50ís

The majority of contemporary students will most likely be still paying back their student loan from higher education when they are in their 40ís and 50ís, a recent research study has concluded.
Around 75% of former students will have to have their debt written off in the future, whilst a number will struggle to ever pay off the full balance, the Sutton Trust initiated report identified. 
Furthermore, the report argued that the reforms made to the student finance system and tuition costs back in 2012 have hit the fortunes of low income families severely, with many being unable to send their children to university due to rising living costs at a time when wage rises have been stagnant. 
 Government officials have rebuffed the reportís findings however, arguing that a greater number of students from poorer backgrounds have managed to acquire a place at university since the new schemes introduction. 
The Payback Time? Report, compiled by researching staff at the Institute for Fiscal Studies, analysed the long term affects that the new student loan system has had on households in tandem with the new higher tuition fees that total as much as £9,000 each year. 
And the report concluded that since the new systems implementation, the average student has amassed a far higher level of debt that before, with the average graduate thought to owe a monumental £44,000 since the change was made back in 2012. 
It says: “We estimate that students will leave university with nearly £20,000 more debt, on average, in 2014 prices (£44,035 under the new system compared with £24,754 under the old system).
“The vast majority of this increase is the result of higher fee loans to cover higher tuition fees.” 
Reforms 
Alongside the rise in tuition fees to £9,000 back in 2012, a new student loan system for repayment was implemented that has seen the threshold for paying back the loan rise to £21,000, up from the previous £16,910. 
However, it is the new interest aspect of the system that has garnered the most criticism, as students are now required to pay a higher than inflation 3% interest rate on their loans, whilst the previous system did not necessitate any formal interest to be paid at all.
Those who earn over £41,000 will have to pay an even higher rate on interest, though all debt is written off after 30 years, which still compares unfavourably to the previous 25 years offered from the old system. 
The changes have meant that the average graduate will now have to pay back £66,897 over the next few decades, with higher earners standing to be the worst affected. 
The report also argued that the higher than inflation interest rate on the loans means that 45% of graduates will pay back a larger amount than they borrowed in actual terms. 
Nevertheless, though this may be the case, due to the interest now attached to the loans, most will fail to pay their loans back in full and will have them written off. 
“We estimate that 73% will have some debt written off at the end of the repayment period, compared with 32% under the old system. The average amount written off will be substantial – about £30,000.”
 ëBroken systemí
One example illustrated by the report to highlight the long term effects that the new student loan system will have on the future finances of graduates was of a ìaverageî teacher, who is given the hypothetical situation of acquiring a normal loan, works each year post-graduation and has a normal salary for someone in the teaching profession. 
People such as these would need to pay £25,000 on average at current prices through the old system, and would likely have repaid their loans by 40.
However, the same teacher under the new system would have to pay a substantially higher £42,000 at todayís prices, and would still have not paid their debts back in their 50ís, with the likely result being that a staggering £25,000 would have to be written off. 
Conor Ryan, director of research at the Sutton Trust, said: “There has been a lot said about the lower repayments that graduates make in their 20s under the new loan system, but very little about the fact that many graduates will face significant repayments through their 40s, whereas many would previously have repaid their loans by then.
“The new system will benefit graduates who earn very little in their lifetime. But for many professionals, such as teachers, this will mean having to find up to £2,500 extra a year to service loans at a time when their children are still at school and family and mortgage costs are at their most pressing.
“With recent revelations about the proportion of loans unlikely to be repaid, it seems middle-income earners pay back a lot more but the Exchequer gains little in return. We believe that the government needs to look again at fees, loans and teaching grants to get a fairer balance.”
Labour have hit out at the government for being responsible for breaking the student loan system, which in its current state has increased the financial burden on families of all incomes, placed further costs onto the taxpayer, and is now expected to incur a multitude of students who will still be paying their loans back into their 50ís.  
Liam Byrne, the shadow minister for universities, science and skills, said: “Degree costs have trebled yet costs to the taxpayer have gone up, and now we learn our children and grandchildren will be paying off their student debt well into their fifties.
“The system has lost all fiscal credibility and is losing public confidence.”
However, the government has issued their support for the reforms made the student loan system back in 2012, arguing that they have contributed to getting a larger level of under privileged children into university than ever has been seen before. 
They pointed to the widespread availability of grants and bursaries to lower earning householdís that have compensated for the higher tuition costs, though no reference was made to the higher level of interest graduates are being forced to pay, and the new upper limit for interest for those who earn more than £41,000.
A spokeswoman for the Department for Business, Innovation & Skills said: “As a result of our reforms, a greater proportion of students from disadvantaged backgrounds are going to university than ever before.
“Most students will not pay upfront to study. There are more loans, grants and bursaries for those from poorer families.
“We have protected those on lower incomes by increasing the repayment threshold to £21,000 and our universities are now well funded for the long term.”

 

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