Martin Lewis: Student Loans Decoded

Martin Lewis: Student Loans Decoded

November 21, 2019 24 By Stanley Isaacs


We want to change the way
that people think about student finance. It has been full of myths
and misunderstandings because of the political spittle. Your future has been used as
a political football by our politicians, trying to score points
against each other in debate. And the thing they have forgotten, and the thing that’s most important
for us to focus on today… …is, what is the practical impact
on your pocket of going to university? How is it going to affect your life?
How are you going to pay it back? How are you going to afford to live
while you are at university? And that’s what I want to talk about. So I’m going to ask you some questions,
and we’ll see how we do on this. First of all, how much, typically, does it cost
to go to university in England? And we’re talking today
about the English student finance system that started in 2012. How much does it cost to go? Yeah? £9,000 a year. £9,000 a year. Anyone else? Not quite. -Yeah?
-£9,250. £9,250 is the cost of tuition fees. How much is it to go to university
on a three-year course? £27,000 or £27,750 if you want to do… No. -Yeah?
-£50,000. It’s fascinating that you say that. Wrong! Anyone else? Would you like to know the answer? -Yes!
-How much it’s going to cost you… I don’t know. This is really important. When people talk
about the cost of university – your £50,000 figure is getting
in the ballpark that people talk about… You could argue it’s £60,000 now. £9,250 a year times three is £27,750. There’s also a living loan
that we’ll talk about later – how do you afford to live
when you’re there? If you have the maximum
London living loan, living away from home, plus £9,250, on a three-year course,
you’re talking nearly £60,000. -A lot of money?
-Yes. But here’s the point… That number, for the vast majority of you, is completely meaningless. The weird thing in student finance… …is the price tag. The amount they say it costs – £60,000 – is completely delinked from what you’ll actually pay. And what really counts
is what you’ll actually pay. And I can tell you that the actual cost
of you going to university will be somewhere between nothing and about £150,000. And what does it depend on?
Does anyone know? What’s the key factor? Yeah? How much you’re earning. How much you earn
when you leave university. This is all about that. Do you know how much you repay? I think it’s if you’re earning
something like £20,000 after that… You repay 9% of everything you earn over, currently, £25,725 a year. 9% of everything you earn over £25,700. And that figure will go up each year.
So let’s do a simple sum. Who is good at maths? Any volunteers? OK, we’ll do it here. Are you ready? So, if you earnt £26,725 a year, how much above
the £25,725 a year threshold is that? -£1,000.
-£1,000. 9% of £1,000 is? -£90.
-£90. So if you earn £26,725 a year, you’re repaying £90 a year. Another volunteer…? Yes? Right… If you earn £35,725 a year, how much above £25,725 a year is that? -£10,000.
-£10,000. 9% of £10,000 is? £900. £900. So, at £26,700-odd quid, it’s £90 a year. At £35,700-odd quid, it’s £900 a year. If you earnt £125,725,
it would be £9,000 a year. What you repay
is in direct proportion to what you earn. If you earn £24,000 a year,
how much do you repay? Nothing. Nothing. So you’re starting to hear
the language of how this really works. Everybody…
“It’s a debt. It’s a debt! It’s a debt!” “£60,000? How is my life going to work?
What are my children going to do?” It’s what you hear when they do phone-ins. Parents – “How are my kids
ever going to repay this £60,000 debt? Hold on. They’re paying 9% of everything
they earn above £25,725 a year. If you’re worried
they’re going to be low earners, it’s the least of your worries. I’m out of breath now. I’m old. That’s the least of your worries. If they’re low earners,
how much do they repay? Nothing. They repay nothing. Anyone know when the debt wipes? It’s 30 years after the April
following when you leave university. So, if you go at age 18,
you’ve got three years at university. Let’s say you’re now 21-ish. So the debt will be wiped when you’re 51. And you repay 9% of everything you earn
above a threshold, and I need to say it’s a threshold
because that figure changes each year. Hopefully, it will go up each year
with average earnings, as they have said. We’ll talk about
whether that will stick later on. So that’s the core concept. £60,000 is the price tag. But the cost to you
is what you repay each year. If – and I hope it doesn’t happen – you are never to get a job
above the threshold in that 30 years, you would not repay a penny
for your education. Who pays the most? Who will repay the most
for their education? The people that earn the most. The people that earn the most. Technically, not quite true. There’s actually a bizarre curve here
that says low earners pay nothing, mid-low earners start to pay something,
mid-earners pay more, high earners pay more,
very high earners pay more, extremely high earners start to pay less, and I’ll explain why later. But, yeah, in general, the more you earn, the more you repay. So my hope for you is that university
is going to cost you a fortune because it means you’re a high earner. This is a financially
no-win, no-fee system. If you don’t gain financially
from your education, then, hopefully,
you won’t repay a lot for it. And it won’t be prohibitive. If you’re on £26,000 a year
to £26,700 a year, you’re repaying £90 a year
from your pay packet. That’s the crucial thing – that difference between
the cost of university and the price tag. But there are a few more things. Who pays the tuition fees
for you to go to university? Do you know? The government? Sort of.
The Student Loans Company. You do not have to pay upfront
to go to university. This bit is really important
to make sure, especially, that those of you whose parents
never went to university understand… When you go to university
as a first-time UK undergraduate… …your tuition fees are paid
automatically for you. You have to apply for it, but they’re paid automatically
by the Student Loans Company. That £9,250 figure
that we talked about earlier. That gets paid for you. That goes to them. You don’t actually need to think about it
until the April after you graduate, when you’ll be eligible to start repaying
if you earn enough. So there’s no upfront charge. But there is, actually, something that’s
far more difficult for most students. And that’s, who’s going to pay
for you to live while at university? Who is it? Do you know? It’s what you must think about. At the moment,
I’d suggest most of you, not all of you, but most of you live at home
with your parents. The things that you have
are generally paid for in the family home by your parents, in the way they work. When you go to university, who pays? Look at that face. “Don’t think of me.
I haven’t got a clue.” Yes? You can normally get a maintenance loan. And then, that’s normally… You get the full London amount –
around £9,000 a year. You get it termly. Spot on. Maintenance loan. So we’re still in the loan system. When you go to university, your living costs
come from a maintenance loan, or that’s what you’re supposed to think. In many ways, while all the political focus
is on the tuition fees… …this is the thing you’re going to have
the most practical difficulty with – living while at university. Is the loan enough?
How does it actually work? And there’s a conversation
I want you to have with your parents which is crucially important. And for those of you watching at home, if you’re sitting
and watching with your parents, keep watching. Don’t look awkwardly at each other
as we go over this. Have the conversation afterwards,
but it’s important that you do it. So, here’s how it works… The maintenance loan that you get,
first of all, depends on three factors. Are you living at home? If you’re not living at home, are you studying in London
or out of London? The lowest loan – full loan –
is for those living at home, then for those living away from home
outside of London, and the biggest is for those living away
from home in London, for obvious reasons – London is a more expensive city to live in
than the rest of the country. But here’s what is not talked about. Here, in fact, is what I believe
the government hides from you and hides from your parents. The amount of maintenance loan
that you will get, the amount of loan
that you get to live off… …is means-tested. In other words, it depends on what’s called
your family’s “residual income”. Forget “residual”. It overcomplicates it. It means they take off
your parents’ pension contributions. So family income means parental income. That’s the point I’m making. Family income means parental income. How much… …you get to live off at university depends on how much your parents earn. This is really important because
when you go to university, you’ll be 18. You’re going to be
old enough to get married. You’ll be old enough to vote. You’re going to be old enough
to join the army and die for our country. But under the student finance system, you are not old enough
to be counted as an independent adult. Your finances will still depend, even though you’ve been sat there at 18 –
“I’m independent. I’ll do what I like…” Not in the student finance system. What you get depends on your parents. And this makes a big impact. They can reduce the loan by up to half… …because of your parental income. If your parents earn roughly
over £65,000 combined, then you’ll get half the loan that those people whose parents earn
less than £25,000 get. But here’s the fun bit
that I really, really like… So, let’s think about it. The living-away-from-home,
outside-of-London maintenance loan, currently, is around £9,000 a year
if you got the full amount. Roughly £9,000 a year. So if your parents earn over £65,000,
you’re going to get £4,500. Who does the government say
should make up the difference? Your parents? Anyone else? No. No. No, they don’t say anything at all. They don’t even tell you
that your loan is being reduced. What will happen is you’ll get a letter. Your letter will be like this…
What’s your name? Zoe. “Dear Zoe. How are you?” They won’t say that. “Dear Zoe, we’d like to inform you that your maintenance loan
in the first year is going to be £4,500.” That’s it. That’s what you get. It doesn’t say, “Dear Zoe… …the full loan somebody
in your circumstance would get is £9,000, but due to the means testing
of family residual income, you’ll only be getting £4,500,” which I’d prefer. It doesn’t say what
I’d really like it to say, which is… “Dear Zoe, the full loan for somebody
in your circumstance is £9,000. You’re getting £4,500. The gap is £4,500. We’re expecting your parents
to make up that gap.” You could take it to your parents
and say, “Here is the expected
parental contribution.” It doesn’t say that. What it does
is set you against your parents because you go to university. This conversation hasn’t been had.
You get £4,500. Your cost of living at that university
is £7,000 for rent. Your parents are saying –
and I’ve had this on my TV roadshows… I had a guy who came up to me
who was living on cold baked beans saying, “I can’t afford to live at university.
My loan isn’t big enough.” I looked at it and said,
“What about the parental contribution?” And he said, “My parents have said,
‘You’re on your own now. University is about
being an independent adult. You have to do this …yourself’. Because nobody had told them
about the parental contribution. This is hidden within the system. If you get less than the full loan – by definition,
it is based on family income – then the state
is expecting your parents to contribute. It’s not me doing that.
I don’t necessarily think it’s right. But that is how the system works. Your parents might not be able
to afford to contribute – I accept that. But what is really important
is you do this… If you remember nothing else today,
remember this… When you get your loan letter, find out what the full loan is. Subtract what you’re getting
from the full loan. Let’s say you’re getting £5,000
and the full loan is £9,000. -£9,000 minus £5,000 is…?
-£4,000. £4,000. And you say to your parents, “The gap from the full loan –
the parental contribution – is £4,000. It would be great
if you could help me to that amount.” Guess what you can do
if they don’t want to give you the money? Nothing. Nothing. You’ve got no way
to force your parents to give you money. They’re not legally responsible
for giving you the money, unless you’re declared
an “independent adult”, which means you’re estranged
from your family and not in contact
and financially independent. It’s not something you can jemmy
just to get this to work. Then, it doesn’t make up the gap. Actually, many of the students
who struggle most at university are not those from the poorest families, because they get the full loan. It’s those in the middle. The really rich have enough money that
they’re going to give to the kids anyway. It’s those in the middle
who haven’t had this discussion – the parents get really upset, and
when I tell them and they talk to me… When I do my roadshows, they talk to me.
I ask about the parental contribution. They say, “I didn’t know.
Am I meant to give that?” And now, when I had a big argument with
a guy called Jo Johnson, Boris’ brother, who was Universities Minister, and said,
“This is absolutely inappropriate. The state, at the very least…” “If you’re going to have
an implied parental contribution, the state should tell people
what the parental contribution is. He said, “No. Students can make up the gap
any way they choose. They can go out to work, they can
get scholarships, they can get grants.” And I said, “Then why do you assess them
based on their parents’ income?” “Well…” It doesn’t make sense. If the only factor that dictates
how much you’re going to get is your parents’ income, then the state is saying
there is a parental contribution. So, look,
you have to be fair with your parents. The parental contribution system is rough.
It just takes income into account. If your family earns £70,000 a year, and have hideous credit card debts of
£50,000 a year, that is not factored in. Did you know about it? No. Let me tell you, your parents
don’t know about it in most cases. So it’s really important. So, we’ve done what you’ve paid
to go to university – the state pays. We’ve done how much you live off –
the maintenance loan. Even the full loan
is going to be a struggle. When I went to university,
which was five or six years ago… That was too loud. It wasn’t that funny. Out! Can I do that? When I went to university, it was actually in 1991,
way before any of you were born. So when I went to university, we were at the cusp of the changeover. Before that, it was frowned upon
to work while you were at uni. The thought was you should be focused on
your studies, not getting a part-time job. And I was at the point
where that was changing, somewhat. Because to be able to afford to go, you often needed to work. When you go, a good thing
is that the landscape has changed totally. As an employer, I can tell you this. I want you to go to university
and get a really good degree. But I’d also like to see
some real life experience, and working is really important. And people can get snobbish about this. They think that working means you have to get a brilliant, amazing job
in the summer holidays. “It was just incredible.
We just tripped off. I was working at this record company
doing A&R. It was amazing.” Look, actually, I don’t want to see that. As an employer, a work ethic will do. If you stacked the shelves
in a supermarket overnight while you were a student, I know that means you’ve got some real oomph and graft
and determination about you to enable yourself to succeed and thrive
when you move on. So, you are, probably,
to be able to afford to live, going to want to get yourself a job
whilst you’re at university – a part-time job, a weekend job,
a job in your summer holidays… Go and do it. It’s great if it gives you work experience in the profession you might want to go
on to afterwards, but it doesn’t have to. So, thankfully, with your generation, universities don’t look negatively
on the fact that you’re going to get work. And I as an employer
would encourage you to do so. And don’t get too granular about,
“Is it a good job for my CV, or isn’t it?” What I actually want to see
is if this person can graft. They have a degree in a subject
that’s relevant to the job, but, also, they have gone out
and done some hard work at the same time. And it’s really valuable
that you go and do so. So we have tuition fees sorted. We have maintenance loans
that may not be big enough, and there’s a parental contribution,
and you may have to work, and check out grants
and scholarship websites. How do you repay the maintenance loan? “You’re here to tell us.
Why do you keep asking us questions?” Anyone? It’s exactly the same
as the tuition fee loan. They’re all added together. You have one loan, in effect. So we have the £9,250 a year. And then we have the up-to-£11,000 a year
of living costs on top. You lump them together over three years. You leave university. You will have a loan on your account
of somewhere between £30,000 and £60,000. That will be the nominal amount. And you will then repay that –
9% of everything you earn above £25,725 – for 30 years, unless you earn enough
to clear the debt first. This is the really important bit. How many people do you think… …clear what they borrowed plus interest,
which we’ll discuss a little bit later… …in the 30 years before the debt wipes? 10%? Anyone else? 5%? It’s actually a little bit more. 17% is predicted. So 83% of people… …will not clear the borrowing figure plus interest
in the 30 years before it wipes. What’s that? There’s about 100 of you. So, who am I going to pick? We’ll pick… These lot are your high achievers. Right? They’re high earners. You’re all going
to be the high earners, up to about here. So you lot are all going to repay in full. So what I say to you is totally different
than what I’m going to say… …to all of this… Look at her. “Why am I at the bottom?” That was it. “What?” “I’ll be one of them over there.”
Do you want to swap places? No? That’s really important.
Just visualise that. The vast majority of those of you who
go to university, assuming you all do – decide after this, as you’ll understand
the choices you’re making – are not going
to clear the debt in full in 30 years. Now this is really important… because let’s go back to £60,000. “£60,000! My children…” Right. Let’s go back to that. The 83% of you… …in effect, the amount that you borrow, the debt that you’ll currently see
on your statement that says £60,000 plus interest
being added each year… …is pretty much irrelevant
for all of you. Because what you’d pay
depends on what you earn. You’re going to pay it for 30 years.
You’ll pay that 9% for 30 years. Can I have two volunteers? This will
be relatively simple. Don’t be scared. Yes. So if you come and you come out…
If you both come out… Don’t be scared. I promise I’ll be nice. So you come either way.
What’s your name? -Aio.
-Aio. So you stand there. And your name? -Kareece.
-Kareece. You’re my graduate. You’re going to university. You’ll have your student loan.
You’ll do all of that. Aio, no. Aio, no go. Wasn’t good, but it was quick. So… So you’re not going to university. This is the practical impact… You two are props.
Just look pretty. It’s good. This is the practical impact
of going to university for most of you. Do you know how tax works? -No.
-OK. So let’s start basically. All of us are allowed to earn,
currently, this year – the thresholds change each year –
£12,500 a year before income tax. If you earn up to £12,500,
you’re not taxed. If any of you have part-time jobs now, I doubt you earn over £12,500 a year,
so you won’t pay any tax. If you did, you’d start to pay tax. £12,500 a year. You’ve paid 20% tax of everything
you’ve earnt above £12,500. That first £12,500,
you still don’t pay tax on. Above £12,500, you’ll pay tax on it. It’s called “marginal taxation”. At £50,000, the tax rate goes up to 40%. Everything you earn above £50,000, 40% disappears. You keep 60% and the state takes 40%. But on the amounts below, you’re still paying 20%
on the gap in between, and nothing here. It’s important. People say to me… I still get people
who have worked for years who say, “I’m getting a pay rise that
will make me a higher-rate tax payer.” That’s the 40% band.
“Should I say no?” They think the 40% will apply
to all their earnings. It applies to the bit above £50,000. So earning more pays more. And if you’re lucky enough
to earn over £150,000 the income tax rate is 45%. But it’s different for graduates
in practical terms. Graduates repay 9%
of everything they earn above £25,725. And they repay it just like tax –
through the payroll if you’re employed. But it comes off before you get it. Let’s do it. Non-graduate and graduate. OK. From 0 to £12,500, how much tax
will you be effectively paying? Nothing. From 0 to £12,500, how much tax
will you be effectively paying? -Nothing.
-Nothing. It’s the same. From £12,500 –
listen to the crucial figure – to £25,725, how much will you be paying? -20%.
-20%. How much will you pay? -20%.
-20%. Right? The same amount. From £25,725, which is the student finance
repayment threshold that only graduates repay above… I’m not giving any clues. How much will you pay? The tax threshold hasn’t changed.
It’s the same as it was before. 20%. He got it. You’re with it, aren’t you? You’re still paying 20%. You haven’t been to university. You’re
still based on the income tax threshold. But you have gone to university. So you’ve got your 20% to pay,
but there’s also the 9%. There’s 20% and there’s 9%. -How much are you going to pay?
-29%. Yeah! You’re starting to see this. Now, at £50,000, the tax threshold goes up to 40%. -How much will you, a non-graduate, pay?
-40%. You’ve also got the student finance 9%.
How much will you repay? -49%.
-49%. Above £150,000,
where the rate goes up to 45%, how much will you repay? 45%. -And how much will you repay?
-54%. 54%. So… the real difference
to going to university, and the way
you should actually think about it, for 83% of you, is not, “This is a debt.
How will I repay it?” But is, in fact, you, above £25,725, will be repaying 9% more effective tax than our non-graduate here. That’s how you think about it.
Give these two a round of applause. And this is a really important fact. Now, I need to be plain. Don’t think I’m saying that’s cheap. That isn’t cheap. This isn’t about saying it’s not
a big deal and don’t worry about it. It can be a lot of money. But it’s not a debt hanging over you. It’s not a debt noose around your neck. “£60,000. How am I going to pay £60,000?” You don’t. You’re repaying that 9%. You are going to pay more tax
than the equivalent. You have to ask yourself the question,
is it worth it? Am I going to gain enough
from my university education that it is worth paying 9% more tax? If you go to university and you earn the same amount
as you would have done had you not gone, you will have less money
in your pocket because of it. If you go to university and you earn more than you would have done
had you not gone to university, then depending on the exact equation, you’ll have more money in your pocket,
even though you’re paying more tax. That is the financial debate. I should say, though, it’s not what I talk about, but university
is about more than how much you will earn. Going to university
will let you meet people you wouldn’t otherwise have met, let you engage in activities
that you wouldn’t have the option for, develop yourself as a human being
to understand how our society works – what’s going on out there, time to think,
time to engage, time to grow, time to get a different set of values from the more narrow ones
we were all brought up in. That’s not you. That’s all of us. So university is about far more
than just how much you’ll earn afterwards. I have campaigned
that we don’t call this a student loan. In practical terms, not political, but in practical terms,
it’s more like extra tax, which is why I argue it should be called
a graduate contribution scheme. Because it’s not students who pay it. It’s graduates. It’s university leavers. If I had come in here and said… Imagine we did the speech again… I’m here to talk to you
about your graduate contribution scheme. As you all know, if you go to university
and earn over £25,725 a year, you’re going to repay
9% above that amount, until you repay roughly the cost
of your going to university and the amount
that it costs you to live off. If we talked about it like that, it would
have a very different feel, wouldn’t it? And that is the problem. Can anyone say what the interest
on a student loan is? Yes? -You’re good. He got the first one right.
-Oh, no… It’s a lot of pressure. Does it depend…? There is interest on student loans. The interest you pay
while you are a student, currently, is RPI, which is the rate of inflation… …plus 3%. 2.4%, the rate of inflation,
plus 3% is 5.4%. That’s the amount of interest
that is added to your student loan account while you are at university. Once you leave university, the amount of interest that’s added
to your student loan account – there’s a reason for my convoluted
phrasing which I’ll explain in a moment – is if you earn less than £25,725 a year, it’s the rate of inflation – RPI. If you earn more than £46,305, it’s inflation plus 3%. So below the £25-ish is inflation. Above the £46-ish, it’s inflation plus 3%. If you’re in the middle,
it’s a linear progression – it goes up in a straight line
between the two. So if you’re halfway between,
it’s inflation plus 1.5%. You got those numbers roughly. So that is the amount that we pay.
Who knows what inflation is? Tell me what inflation is. Money losing its value. Money losing its value
or the price of things increasing, so, yeah. Generally, prices increase. Occasionally, we have deflation,
but usually we have inflation, which means
what you pay for something today, in a year’s time,
you’ll likely pay a little bit more for. A year after, a little bit more on top. And what you earn today for doing
the same thing, in the same circumstance, in a year’s time, you’ll earn a little bit more. A year after that,
you’ll earn a little bit more. So a salary of… …£15,000 a year for somebody working now
is not a high salary. Back in the 1970s… It doesn’t actually mean £15,000.
It doesn’t change anything. It’s a notional value, if you understand.
It doesn’t matter. And, equally,
a salary of £150,000 a year now… But if you earn £150,000 a year
when you guys are retiring, it probably won’t be that much. Right? It doesn’t mean anything.
It’s just the way money works. Let’s imagine it like this… Let’s imagine now you had a loan… …which was linked solely to inflation. So forget the plus-3%.
It’s linked solely to inflation. Now, imagine you borrow –
for ease of numbers only – £10,000. So your total loan is £10,000. This year, that is enough to buy 100 shopping trolleys’ worth
of supermarket shopping. So £10,000 is 100 shopping trolleys’ worth
of supermarket shopping. Inflation goes up 2%. Next year, that £100-worth of shopping
costs £102 and the year after, £104 and a little bit,
and the year after, £106 and a bit more. So it costs £106. If you have to repay your loan
in 30 years’ time, the £10,000 may
have increased to £25,000 with inflation. But, equally, if it has, then the shopping trolleys
now cost £250 each. They don’t cost £100. So you borrowed enough to buy
100 shopping trolleys’ worth of goods. And you’re repaying enough to buy
100 shopping trolleys’ worth of goods. The net purchasing power effect
on your pocket hasn’t changed, because your salary
will have also likely gone up – hopefully, by more than that,
but by 2.5 times. So we haven’t
actually increased your costs. This is what’s called in economics
“no real cost” because everything has gone up in line. The number going up doesn’t matter, as your wages have gone up,
costs have gone up – everything has gone up
in proportion to each other. Do you understand that concept? If you had a student loan
that was set at the rate of inflation, then there’s no real cost to you. Some people have student loans
at less than the rate of inflation – some people who went to university earlier. That means, in real terms,
their loan is shrinking, not growing. Now, your loans,
or the current system anyway, is set while you’re at university –
3% more than inflation. The real cost to you is 3%. Forget the inflation figure.
3% is the practical impact on your pocket. And after you graduate
or after you leave university – if you don’t graduate,
you still have to repay a loan – is somewhere between nothing and 3%. So that’s what’s added,
and this really upsets people, because that is very high. And I, too, appreciate it is high. In some cases, inflation plus 3%
is higher than a mortgage rate. But here’s the really complicated bit. Here’s the brain twist that
you’ll have to get your heads around, which is why
I’ve gone through it step-by-step-by-step. I’ll go back to what I said. The interest that is added
to your student loan statement… What I didn’t say is the interest that you pay… …because those two things are not the same. Does anyone…? Probably this corner,
the Business and Economics students… Has anyone worked out
why they’re not the same? -Yes?
-Because you still only pay 9%. Boom! Because what you pay is 9% of everything above £25,725. The only people who will repay
all the interest added to their statement is that lot over there. 17% who will clear in full, because to clear in full,
you have to clear all the interest. If we imagine – I’m so sorry,
as I keep doing this to you – that these are the lowest earners
who go to university, and we’re getting progressively higher
as we go around here. So we’ve got middle earners here,
pretty high earners here, uber-high earners here and these four –
they’re “the man and that woman”. Right? They are the top-notch. We start here. Well, this lot aren’t earning enough. You repay nothing,
because they’re not over the threshold. Yeah. This is roughly proportioned.
This isn’t scientific. It’s totemic. So you repay nothing. I’m sure you will!
But you repay nothing. Right? This lot here, during their lifetime,
will get just above the threshold. So they won’t repay enough to clear what they borrowed. Never mind interest. To get the interest,
you’re repaying a bit, but not too much. You might pay £4,500 or something, but
nothing compared to the initial borrowing. You lot here are repaying what you borrowed
and maybe a little bit of interest, but nothing like the inflation plus 3%
that may have been added, or won’t be as you’re not high earners,
or nothing close to inflation. So, in real terms, what you’ll repay
is less than you originally borrowed. In cash terms, it’s more.
Do you understand the difference? Cash terms is the actual price tag, but real terms
is the price tag plus inflation, so you’re repaying less. You guys are actually starting
to pay a little bit of interest over and above inflation – not too much, but just a little bit. Here, you’re paying
quite a bit more than inflation, but you’re not paying
as much as what’s been added because you’re not clearing in full
within the 30 years. And you… You’re repaying everything. So this is all
the point that it goes back to… In practical terms,
yes, interest is added. In practical terms,
for probably half of you, the fact that interest is added –
or maybe a bit more than half of you – means you will pay more
than if interest wasn’t added. So it’s no difference to you lot.
It’s more difference to you lot. But in reality, you’re repaying
9% of everything you earn above £25,725. You’ll do that for 30 years,
unless you’re a really high earner. Yes, politically, we can argue,
“Should it or shouldn’t it be added?” But in practical terms,
for all but you guys, it’s just 9% added tax. Now, you will have… Parents will be very concerned
about that rate of interest. They will be really concerned about it, because what you’ll also see – and, again, this is something
I campaign against – is when you leave university,
you’ll get a statement. And it’s going to say
you’ve borrowed £50,000, and it’s going to add
each monthly interest on top. And it’s going to have
£500 to £700 added on top. Right? In some cases. And it’s going to look horrendous. You’re going to go,
“Oh! The interest! It’s awful.” And I know people… …who have got so panicked about the interest
they see on their statement adding up and up and up and up and up. That they come into some money
from an inheritance, or they get some savings, and they think, “The best thing I can do
to reduce the interest is to pay some of my student loan off.” But some people
who tell me they have done that… …have even been earning less
than £25,000 a year. Can you see the problem? You’ve got a £50,000 loan. You repay £10,000 of it off.
We’ll forget inflation for the moment. You now owe £40,000. You’re earning £25,000 a year –
less than the threshold. How much has it saved you repaying
by clearing £10,000 off the debt? Nothing. Nothing. You flushed £10,000 down the toilet. That’s real. And then they say to me,
“Can I get the money back?” If you’ve overpaid
the student loan system in error, you can get the money back. If you’ve voluntarily overpaid it,
which is what this lady did, you cannot get the money back. Which is why you all need to know how
it works way before you take the loan out. Never mind once you start repaying it. And it gets more complex. Even if she had been earning
above the threshold, the actual maths is she would have had
to be earning enough to clear £40,000 debt plus inflation over the 30 years, before paying the £10,000 off
would have saved her any money at all, which is probably this sort of line in my nice
100-people-in-a-room proportion. So everybody here
shouldn’t pay £10,000 off, off a £50,000 loan. Everyone here, it may have benefitted you.
It probably benefitted you lot the most. If she’d had enough money
to clear the loan, then, in real terms, it’s everyone who repays the loan
plus inflation, so it’s probably here. Everyone here would have gained,
but everyone here wouldn’t have gained. It’s a very complex equation. Someone answer the question… When parents say to me,
“We’ve got savings,” or, “Should I take out a loan so my child
doesn’t have to have a student loan?” what’s the answer? No. Or slightly more technically, only if you’re absolutely sure your child
is going to be a very high earner and will work consistently
for 30 years afterwards, because if they don’t work consistently for 30 years,
they won’t have to repay so much. Then you may want to,
if you’ve got that much spare cash and have saved up
for a mortgage deposit for them – that’s a more difficult thing you’ll
all face than repaying the student loan – consider overpaying
their student loan for them. By the way, are you sure
that when they start university, you know what profession they will take –
if they will study law or medicine? They may change their mind. That would be my answer,
but your “no” was simpler and probably just as right. But the fact that you all just went “no” is music to my ears, because it means we’re starting to change
the way that we think about this system. Do you think you would have said no
at the beginning? You’d probably have said “pay it off”, because you get less debt. Of course, for the state, we might like them to pay it off. For taxpayers,
we might like them to pay it off. Something else
that isn’t often spoken about, and it’s maybe
a good option for some of you… All of these financial systems,
since 2018, are available
if you go to university part-time, as well as full-time. You get a loan for the tuition fees,
which are roughly around £4,500. And you can get a living loan, too, provided you’re doing
at least 25% of the course in a year. So maybe, for some of you,
for your own personal circumstances, you decide going to university full-time
isn’t right for you. You may have family requirements
and can’t do it. You might have
to work in your family business. If those are the circumstances, actually, going to university part-time
isn’t a bad thing to do. It takes you longer. You study for longer.
It takes longer to graduate. It takes longer to move on
but isn’t a bad option. The student finance options
I’ve talked about today are all available, and it all works in exactly the same way as it does going full-time. The only possible difference
is your total borrowing may be lower. And if your total borrowing is lower,
then going back to my nice… We didn’t deliberately set you up
like this. It’s perfect for my argument. Going back to my nice equation,
it means more people would repay in full, before the debt wipes. So we’d have a bigger group here. The lower the borrowing, the more likely
you repay in full before the debt wipes. So that’s it from me. The summary I hope you understand is many of the messages
that we hear about student finance are wrong. In practical terms, your tuition fees will be paid for you. You’ll then have a living loan, which depends
on how much your parents earn. All those will be wrapped up, and you’ll start to repay them
in the April after you leave university, and you will repay
based on what you earn – 9% of everything above £25,725. And you’ll do that for 30 years,
the vast majority of you, unless you clear what you borrow plus the interest
that they added beforehand. Effectively, what we have
is a financial no-win, no-fee system. So I hope university is going
to cost you all a shedload of money, as it means you’re earning a shedload. Thank you very much. We’re going to move on to questions.
Does anyone have one? Yes? This might be slightly inappropriate, but if something were to happen to you,
if you were to die, or become disabled, would your student loan go away,
or would your parents have to pay it? It’s not an inappropriate question at all.
It’s a really good one. If you have an illness that
is going to end your life in a short time or you die with your student loan, the student loan is not passed on. It is your student loan
and it would not be paid. You would not have to pay it, and nobody would have to pay the debt
on your behalf. It’s absolutely wiped on that basis. You know, just one thing… It’s not quite the same. It’s worth
saying about student finance as well. If you go to university and you study, and you drop out after a year, you still have the loans. Not graduating does not wipe your loans. So it is important to understand
that once you go to university and you’ve had your living loan
and your tuition fee loan, and after a year, it’s not right for you, you will still have some debt to repay. You’ll have some of the loan to repay.
Any other questions? Go on. Be brave. Yes? I’m guessing you’re a teacher. I completely understand about taking
student loans and maintenance loans because it’s potentially free money
as a parent as well. I have friends who have paid
their children’s maintenance. They didn’t take a maintenance loan.
They gave them a living allowance. Do you think that’s wise? Look, there are always issues
about people’s own individual finances and it depends
on how much money you’ve got. The answer is… If you had a high earner… If you had a child…
In your case, you’re asking as a parent. If you had a child who was a high earner
after they graduate – probably this area of the room – because you’re lowering the initial debt, because of the interest,
there could be a minor benefit. But, again, I would absolutely prioritise,
as a parent, sorting your own finances
so you’re debt-free first. I would never borrow
to find this money to fund it. And giving them a deposit
for a first house, which is the most arduous thing
most people will find… Now, we want them to have a 10% deposit
and property prices are so high. If you have done all of those things, and your child
is likely to be a high earner, and you’ve got the cash
and don’t have another call on it, there’s nothing wrong with it. But I certainly wouldn’t want
the message to go to most parents who will never
be in the position to do that, that you not doing it
means you are subserving your children, because you’re not. It’s actually… The gain… Well, there may be a loss. Ultimately, if your child goes… Let’s take the positive example – they’re going to be a great artist
who is not successful in their lifetime. It’s a bit silly, but it gives you
a nice example of someone who does well, who is successful but doesn’t earn a lot –
they have thrown all the money away. But there are some people
who want to contribute to the state. They might have it for that reason. But I think doing that
is certainly not without its risks. And I would probably… In any case, if you’re making the decision
as a parent to pay it off, I would put the money in the highest
interest savings account I can, so currently 2% fix. While they’re at university, accept that they’re going
to be paying inflation plus 3% – about 5%, so there’s a 3%-a-year cost to doing it. And then once they leave university and they get a job, you now have a better idea
of their next 30 years – you don’t while they’re at university. You now have a better idea of what
their earnings potential and path will be. Then you may want to pay it off. You can pay it off at any time
without penalties. I probably wouldn’t do it before they go to university if you were looking at this purely as,
“What is financially expedient for me?” rather than a wider morality
about the state and how we factor that into it. Good question. Any more questions? Yes? How do you know when to apply
for bursaries and your student loan? Bursaries are an interesting one. You’ll go through that.
Have you been to open days? You’ve all been to your open days
and started seeing universities you like. You make your decision. A big thing
I should have mentioned earlier, so it’s good
that it’s flicked into my head… Look, forget the tuition fee price – they will tend to all be £9,250 now. Originally, the plan was
that the marketisation of universities would offer different prices and
you’d choose your course based on that. It doesn’t happen.
Most of them are £9,250. But do look at the cost of living
at the universities you’re looking at. We talked about
the maintenance loan before. You can go online. On MoneySavingExpert, we have it. You can get a rough idea
of what your maintenance loan will be, and ask your parents
what they will give you. And look at the cost of living.
Look at the cost of halls. There are books and indices out there
about the cost of living in universities. That, unfortunately,
while I don’t like it – we should have a meritocracy, and you should be able
to choose your university just on whether it’s right for you
and you’re right for them – is a factor. Look at the cost of living at university when you’re making those decisions
of which universities to apply for. Bursaries may be available –
they tend to be pretty rare these days. And, actually… And fee reductions… I would always take cash
over a fee reduction. You’re going to be applying
for your student finance by next May. You’ll have made your university
applications before you do that. There’s a nice process to go through. That’s quite easy and structural. The real thing to decide now is,
do I want to? If I want to,
which one do I want to go to? If I decide which I want to go to,
can I afford to live while I am there? Those are the questions
that you should be looking at right now. You should be having this discussion
with your parents, assuming
you’re financially linked to them, which I would guess most of you are. And these are the ways
that we make a choice. I would hope… I would always push… My first rule, instinctively,
would be to say to you, if going to university is right for you –
it isn’t always right, as there are great apprenticeships
and jobs out there at 18 and university
is not the right path for everyone – do a course that is properly
going to benefit you both vocationally and in who you want to be as a person. But if going to university
is right for you, then my first instinct would be
go and choose the right course. And try and work
through the financial gap. If that course is right for you,
go and choose that right course, and go and do what you have to do. The system is not perfect. Other questions? Yes? For all the people
who generate a personal income before going to uni, is their loan still decided
depending on their family income? So for it not to depend
on your family income, you have to be
what’s called an “independent student”. And an independent student… Now, if you’re over 25 or have children… …you’re an independent student
automatically. If you’re not, then you have to be genuinely,
properly, provably, financially separated and estranged from your parents to a real degree. So that is quite
a difficult thing to prove, but generally the state
does not want you to prove it. So you’re talking all the hurdles in a 110m race’s worth of hurdles
to jump through to get it. Just the fact that
you’re earning a little bit for yourself and providing for yourself a little bit
does not make you an independent student. So it is quite a complex definition. I would err on the side of imagining that
you wouldn’t be an independent student. You need to do your reading. If you think it’s a plausible outcome… It’s a big subject but it’s difficult to get certified
as an independent student. So generally, family income would be… The classic example – I met a young man once who was 17 and there were issues with his parents. He had left home at 16
and he was living in foster care. And he was funding himself to go through his education
at the age of 17. He’s an independent student. It’s that sort… You see the degree
we’re talking about, of separation. -Yes?
-Can any of this change? I’m very glad you asked me that. Yes is the answer. And this is the difficulty… Everything I’m telling you is based on the current system. There are two types of possible changes. You are Year 12, but
you’ve got another year to go at school. You’ll be making your applications
over the next year so this is the perfect time to do it. And then, for most of you, you’ll start university
in a couple of years’ time. Some of you may take years out
and it’s another year after that. There is talk at the moment
of the system being changed – a report called the “Augar Report” proposes changes
to the higher education system. I’m not going to go into those changes
because it’s quite a radical shift. It hasn’t happened.
It’s not been accepted. But perhaps a more important element
of that question is, once you sign up to this system, is what you sign up to locked in
for those 30 years? And the answer to that is no, which makes this very difficult for me. Now, generally,
negative retrospective changes – so that means a bad change that happens
after you’ve signed up for it – go against all forms of natural justice. So we would assume it wouldn’t happen. And I did assume that wouldn’t happen. And then, I headed a taskforce in 2011
when they changed the system, not because I supported the change,
but I supported explaining it, called “The Independent Taskforce
on Student Finance Information” – I chaired it – about how to communicate to young people
what the changes in the system meant. As part of that, I said
that the threshold would be £21,000, as it was then, and from 2017,
it would rise with average earnings. Then in 2015,
they announced that from 2017, it wasn’t going to rise,
but they would freeze it. And I was furious because I felt
that I’d been their information mule. I’d felt they had used me
as an independent taskforce… I had letters telling me
this would happen, it was going to happen. I was the person
who had said to all these people it’s going to increase from 2015, and I was furious. I hired lawyers
to take the government to court, as I thought
it was against natural justice. And we campaigned and eventually,
they got rid of the freeze, and after campaigning, they put it up to £25,000,
which is what we’d wanted, and they moved it with average earnings. But it was proof
that bad things can happen and changes can happen. There are things we think won’t happen,
like changing the 30-year wipe. It would be absolutely outrageous
if they change the 30-year wipe. But, interestingly,
the first thing to understand is a lot of this can be changed
by what’s called “secondary legislation”, which means it doesn’t
have to be voted on in Parliament. Voting on something in Parliament makes it
more difficult to change anything. It can be done
by the authority of a minister. So there is a political risk here
that things could change. Even if, as someone like me campaigns, it should be locked into statutes
so you can change it by law. Here’s a word you don’t hear often –
Parliament is “omnicompetent”. “Omni” means “all” in Latin.
“Competent” is competent. So it’s all-competent. Technically,
the UK Parliament could vote tomorrow that the United States of America
was part of the United Kingdom. Then, in law, the USA
would be part of the UK under British law. It would be nonsense,
but Parliament can do what it likes. So you can never lock in anything, but at least
if it were only changed by statute, changed by a vote through Parliament,
it’s more difficult to change things. But we don’t have that. And one of the things
that I lobby on is, well, if we’ll have terms that can be varied, we should say which terms can be varied
and which terms can’t. What I’ve done today,
and everything I’ve said to you, is based on the system
as it exists right now. I think, after the terrible shenanigans
the government had, it is unlikely
we’ll see retrospective changes, but it’s far from impossible that the system will change
once you’ve signed up for it. It could be the other way. We could have a hard-left Labour
government who decides to wipe your debt, you know, in which case, again,
overpaying would have been a mistake. It’s very difficult to make a decision. So all I can offer you in frank honesty is to explain to you how the system
you’re signing up to works, if it stays, as you’ve signed up to it. And I can’t give you any more than that. But it’s important that I say that to you. So all the decisions
and the logic I’ve talked to you about is based on the current system. And there could be some flaws in them if there were to be radical
retrospective changes once you sign up. But I’m afraid one of the things I hope they do teach in schools now, and I talk about
when I do all types of talks… One of the things we all
have to learn to deal with in life, whether it’s “Should I pay off
my student loans or borrow upfront?” whether it’s,
“Should I get my euros now for a holiday?” or, “Should I lock the interest rate
on my mortgage or gas and electricity?” or whether it’s,
“Should I marry him or her?” is uncertainty. And we live in an uncertain world. And sometimes all you can do
is embrace that and understand that. So I would make the decisions
that you’re making based on the system as it is now, because we cannot predict future changes. But I would be somewhat mindful to the fact
that those changes could happen.