Are You Funding a Degree by Being in Debt? – Student Debt is in the News
The new academic year has just begun and student debt is firmly in the political spotlight.
‘Students now graduate with average debts of £50,000.’ So say the Institute for Fiscal Studies (IFS) in a recent paper which examines higher education costs in England. The higher education financing rules differ for the other three constituent parts of the UK, but all rely upon undergraduate borrowing to some extent.
For a student in England starting a course this autumn, their level of debt on graduation is likely to be more than £50,000. In 2017/18, maximum tuition fees will rise to £9,250 a year and the interest rate charged on loans will jump to 6.1%.
The IFS calculates that on average students will accrue a £5,800 interest bill over the duration of their course.
In England (and Wales) the loan currently starts to be repayable at the rate of 9% of income above £21,000 and so a graduate earning £31,000 would pay £75 a month, which may not even cover the interest accruing on the debt.
Fortunately, any outstanding debt is written off… but only after 30 years following the April in which the course ended.
The IFS estimates that the government will eventually write off nearly a third of the interest and debt total, with fewer than one in four fully repaying their debt.
Keith Bonner, Director and lead IFA at HSC Financial Services of Brighton says “If you have children or grandchildren heading off to university at some point, these debt figures are daunting. Providing financial assistance by establishing a pre-funding arrangement often makes sense. However, careful consideration should be given to applying these funds directly to paying tuition fees and/or maintenance rather than initially drawing down the student loan. In the worst scenario, upfront payment may simply reduce the government write-off. In other situations, there could be some logic in clearing the loan and avoiding high interest payments. Your funding plans therefore need flexibility built in.”
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