WEBVTT - Take Control Of Your Student Loan 0:00:00.870 --> 0:00:03.870 It's Kia, this is A Little Bit Richer. And today 0:00:03.870 --> 0:00:06.450 I'm taking a deep dive into the world of student 0:00:06.450 --> 0:00:09.959 loans. Student loans are one of those things that it's so 0:00:09.960 --> 0:00:12.508 easy to just take a passive approach to. You go 0:00:12.509 --> 0:00:15.719 to uni, you get the loan, your repayments start, and 0:00:15.719 --> 0:00:18.449 you more or less forget about it. But this podcast 0:00:18.449 --> 0:00:21.840 is all about taking back control of all of your finances. And 0:00:21.840 --> 0:00:24.120 the first step to getting that control is to understand 0:00:24.120 --> 0:00:26.489 it. With me today, to help us get to grips 0:00:26.489 --> 0:00:29.130 with all this, is Abigail Foster. Abigail is a chartered 0:00:29.130 --> 0:00:32.429 accountant and she's a founder of Elent, a financial education 0:00:32.429 --> 0:00:35.489 hub for students, employees, and parents. As part of this, 0:00:35.519 --> 0:00:38.848 she runs workshops all about student loans, so I knew 0:00:38.850 --> 0:00:42.540 I had to get her on to learn more. Abigail, 0:00:42.659 --> 0:00:45.059 people listening to this can have all sorts of different 0:00:45.059 --> 0:00:48.389 student loan repayment plans. It's changed a lot. So let's 0:00:48.389 --> 0:00:51.630 begin. Could you talk me through all the different plans? 0:00:52.139 --> 0:00:54.660 Okay. Yes, there's been many different plans. We'll talk about 0:00:54.660 --> 0:00:58.860 the undergrad modern plans, so one, two, and five. So 0:00:58.920 --> 0:01:02.910 one was if you went to university pre- 2012, I 0:01:02.910 --> 0:01:05.610 think it was post- 1998, but pre- 2012, you would've 0:01:05.610 --> 0:01:09.029 been paying the tuition loan at about 3K, very, very 0:01:09.030 --> 0:01:11.369 nice amount of money, I wish I'd paid that. Then 0:01:11.369 --> 0:01:13.860 you had plan two, which came in from 2012. So 0:01:13.860 --> 0:01:17.850 any students that went to university from 2012 to 2023, 0:01:17.850 --> 0:01:21.060 you were on plan two. And then any university student 0:01:21.120 --> 0:01:24.030 that goes to university from this year, so from 2023 0:01:24.030 --> 0:01:26.610 onwards, they are now on plan five. 0:01:27.299 --> 0:01:31.230 Wow. Okay. So how do all of these loans work? 0:01:31.230 --> 0:01:33.779 I mean, if you think about a loan, we think 0:01:33.780 --> 0:01:36.209 about interest rates, right? So you might take out a 0:01:36.209 --> 0:01:38.639 credit card at a certain amount of interest rate and 0:01:38.639 --> 0:01:41.099 you now what you're going to pay. Is that the same when 0:01:41.099 --> 0:01:41.970 it comes to student loans? 0:01:42.030 --> 0:01:45.240 The interest rates on all three plans frustratingly all different. 0:01:45.690 --> 0:01:48.480 Like to make it nice and complicated. So plan one 0:01:48.480 --> 0:01:51.720 is either RPI, which stands for Retail Price Index, better 0:01:51.720 --> 0:01:54.510 known as inflation; or the Bank of England base rate 0:01:54.510 --> 0:01:57.630 plus 1%. So often what's happened with plan one is 0:01:57.630 --> 0:01:59.790 the interest rate has been lower because it's that Bank 0:01:59.790 --> 0:02:03.029 of England base rate plus 1%. Then for plan two, 0:02:03.059 --> 0:02:06.360 they had the interest rate set at RPI plus 3%, 0:02:06.779 --> 0:02:09.540 so Retail Price Index also known as inflation plus 3%. 0:02:09.990 --> 0:02:13.260 So when inflation got crazy high last year and we 0:02:13.260 --> 0:02:16.768 saw those 11. 9% numbers of inflation, we saw huge 0:02:16.770 --> 0:02:21.389 interest on the student loans. Plan five, they decided as 0:02:21.389 --> 0:02:25.078 their nicety for changing the plan, was they basically introduced 0:02:25.080 --> 0:02:28.440 interest and cut it back to just RPI, so just inflation. 0:02:28.440 --> 0:02:31.620 So there is a common misconception that the loan doesn't 0:02:31.800 --> 0:02:35.730 increase over time, but that's not really true because it 0:02:35.730 --> 0:02:40.199 does, it does increase by RPI. But they then assume 0:02:40.199 --> 0:02:42.569 that that RPI means it's just increased with inflation therefore 0:02:42.570 --> 0:02:45.330 the real value of the loan hasn't increased, but it 0:02:45.330 --> 0:02:46.650 definitely does increase over time. 0:02:46.710 --> 0:02:48.690 Okay. That's good to know that. So we need to 0:02:48.870 --> 0:02:50.970 have a look and see, depending on what plan you're on, 0:02:51.210 --> 0:02:54.240 that depends on what interest rate you are obviously going to have 0:02:54.240 --> 0:02:56.969 on your student loan. So when it comes to repaying 0:02:56.969 --> 0:02:59.219 then, because I know when I was in university not 0:02:59.219 --> 0:03:01.080 too long ago, I know I've still got my baby 0:03:01.080 --> 0:03:03.900 face, not too long ago, but when I was in university it was 0:03:03.900 --> 0:03:06.900 always this thing where I had friends say, " I've taken 0:03:06.900 --> 0:03:08.820 out X amount, now I'm going to have to pay it straight 0:03:08.820 --> 0:03:10.830 away." I've graduated and it's almost like the next day 0:03:10.830 --> 0:03:12.839 after graduation you're going to have to pay it back. But I 0:03:12.840 --> 0:03:16.320 want to ask you, what salary do you normally have 0:03:16.320 --> 0:03:18.990 to be on before you start paying off your student loan? 0:03:19.260 --> 0:03:22.079 Okay, with the student loan, again, let's go through one, 0:03:22.139 --> 0:03:24.389 two, and five. So with plan one you have to 0:03:24.389 --> 0:03:28.650 be earning over £22, 015, if we're getting specific. With plan 0:03:28.650 --> 0:03:32.490 two, it's 27,295. And then with the new plan five, 0:03:32.520 --> 0:03:34.619 you need to earn more than 25 grand a year. 0:03:34.799 --> 0:03:37.200 So this is your yearly salary. So let's say you are 0:03:37.320 --> 0:03:40.650 on 25K, then you wouldn't pay anything back on this 0:03:40.650 --> 0:03:43.470 new plan yet until you earn over 25K. So, you only 0:03:43.470 --> 0:03:47.790 pay back 9% over those thresholds. Something to be careful 0:03:47.790 --> 0:03:51.059 though is that what tends to happen is they'll take 0:03:51.059 --> 0:03:53.129 your yearly salary, divide it by 12 and then look 0:03:53.129 --> 0:03:55.440 at your monthly payslip. So if you don't always earn 0:03:55.440 --> 0:03:59.070 the same every month, you might be overpaying the student loan. 0:03:59.310 --> 0:04:01.350 And that's something to look out for because it's worked 0:04:01.350 --> 0:04:03.329 out on a yearly basis, but on your payslip can 0:04:03.330 --> 0:04:06.660 often be then brought back to that monthly amount. So yeah. 0:04:06.870 --> 0:04:09.929 That makes sense. I think it's good to know that. I've seen 0:04:09.929 --> 0:04:13.260 people online have decided to take control of their student loans 0:04:13.260 --> 0:04:15.930 and log in and see if they're overpaying and have 0:04:15.930 --> 0:04:18.510 been able to actually make those claims back. But I 0:04:18.510 --> 0:04:20.160 just want to kind of go back to what you 0:04:20.160 --> 0:04:23.520 said. So when you earn over a certain threshold, you 0:04:23.520 --> 0:04:25.919 mentioned it's any income over that. I think people sometimes 0:04:25.920 --> 0:04:28.709 get confused if it's, like you said, the new plan, it's 0:04:28.709 --> 0:04:31.529 when you earn over £25, 000, some people think that they're going to pay back 9% 0:04:31.529 --> 0:04:35.400 of everything, but it's only the income over, right? 0:04:35.460 --> 0:04:38.040 It is only the income over the threshold across all 0:04:38.040 --> 0:04:41.789 the plans. So if you are earning 30K, you are 0:04:41.790 --> 0:04:45.089 paying 9%, on that plan five, you're paying 9% on 0:04:45.089 --> 0:04:47.910 5K. So the difference between your 30,000 salary and that 0:04:48.240 --> 0:04:51.210 25K threshold, 9% on that. But it does add up. 0:04:51.210 --> 0:04:54.120 Obviously the more you start earning, that 9% is quite 0:04:54.120 --> 0:04:56.250 a large chunk, which is why we commonly call it 0:04:56.370 --> 0:05:00.690 a university tax as opposed to a loan because you 0:05:00.690 --> 0:05:02.460 pay more the more you earn. 0:05:02.940 --> 0:05:05.400 Yeah, absolutely. But I think yeah, that was good for you to 0:05:05.820 --> 0:05:08.580 explain that because I think sometimes ... I know I've spoken 0:05:08.580 --> 0:05:13.830 to people who have almost avoided taking out, especially maintenance 0:05:13.830 --> 0:05:16.289 loans, and that's obviously the loan when you're in university 0:05:16.290 --> 0:05:17.880 that will help you live. And I used that because 0:05:17.880 --> 0:05:20.279 I moved away from home. And have avoided taking out 0:05:20.279 --> 0:05:23.039 more money because they're like, " No, it's a loan and I've got to pay it back 0:05:23.039 --> 0:05:25.320 and I don't want to graduate and have to pay 0:05:25.320 --> 0:05:28.529 it all back. Let me just live within my means 0:05:28.529 --> 0:05:30.060 and maybe make it harder for myself." But I think, 0:05:30.180 --> 0:05:33.809 yeah, the way you explained it that definitely does help. We 0:05:33.809 --> 0:05:38.910 mentioned student loan. Now that operative word loan, will that 0:05:39.000 --> 0:05:42.659 affect people's ability in the future when it comes to 0:05:42.660 --> 0:05:44.640 getting a mortgage or any other type of loan having 0:05:44.640 --> 0:05:45.330 a student loan out? 0:05:45.570 --> 0:05:48.719 It can do, so especially with a mortgage because there 0:05:48.720 --> 0:05:51.210 is a rule which is that the student loan doesn't 0:05:51.210 --> 0:05:55.500 impact your credit score, which then commonly misconstrued as therefore 0:05:55.500 --> 0:05:57.779 it doesn't impact your mortgage. That's not true. So it 0:05:57.779 --> 0:05:59.789 doesn't impact your credit score in the terms it doesn't 0:05:59.789 --> 0:06:02.430 get ... it's not information that filters into your credit rating 0:06:02.430 --> 0:06:05.130 agencies, which then provide you with a credit score. But 0:06:05.190 --> 0:06:07.320 it can affect how much mortgage you get. Because if 0:06:07.320 --> 0:06:09.659 you went to a mortgage provider or you went to 0:06:09.660 --> 0:06:11.580 a mortgage advisor, et cetera and said, " Right, this is 0:06:11.580 --> 0:06:14.188 my income." They would say to you, " Okay, what are your outgoings?" 0:06:14.190 --> 0:06:16.799 And they will look at your outgoings, one being your 0:06:16.799 --> 0:06:20.760 student loan. So if you are earning over that threshold and 0:06:20.760 --> 0:06:22.620 you've got quite a large chunk coming out for student 0:06:22.620 --> 0:06:26.130 loans, that can affect how much you can borrow. So 0:06:26.130 --> 0:06:30.479 that's where it can affect your mortgage. There is discussions 0:06:30.480 --> 0:06:32.159 around if it can stop you getting a mortgage, it 0:06:32.160 --> 0:06:34.469 shouldn't be able to stop you, it's not like a bad 0:06:34.469 --> 0:06:37.200 note on your credit score. It is just something to 0:06:37.200 --> 0:06:38.969 be aware of that it can reduce how much mortgage you 0:06:38.970 --> 0:06:39.300 can get. 0:06:39.480 --> 0:06:41.040 I think that's good to know. So it is just part 0:06:41.040 --> 0:06:45.360 of the affordability checks that the mortgage providers do. It 0:06:45.360 --> 0:06:47.188 is part of what are you paying, what are your outgoings, and 0:06:47.190 --> 0:06:48.809 that's just one of them if you don't earn over 0:06:48.809 --> 0:06:51.839 that. I think that's good to know. Now there's a 0:06:51.839 --> 0:06:54.450 big question, and one I know a lot of people 0:06:54.450 --> 0:06:58.529 want to know, should we, as in former students who've 0:06:58.529 --> 0:07:03.240 now graduated, should we prioritize paying off our student loans 0:07:03.240 --> 0:07:04.770 or should we just carry on as we are? 0:07:06.240 --> 0:07:08.279 When it comes to paying off your student loan, you 0:07:08.279 --> 0:07:10.800 need to put yourself in one of two camps. So 0:07:10.920 --> 0:07:14.730 one, if you are not earning enough that you are 0:07:14.730 --> 0:07:18.720 noticing it on your payslip, leave it. Just leave it 0:07:18.720 --> 0:07:21.239 be. Because once you pay off that student loan, if 0:07:21.240 --> 0:07:23.700 you've voluntarily chosen to, you can't go back to the Student 0:07:23.700 --> 0:07:26.340 Loans Company and get that money back. And that money 0:07:26.340 --> 0:07:30.270 is gone. So whilst you might be taking down the 0:07:30.270 --> 0:07:33.390 loans, but you will end up with less money. And 0:07:33.390 --> 0:07:35.250 obviously less money in your pocket, which you could have 0:07:35.250 --> 0:07:38.578 used for better things. If you fall into the other bracket where you 0:07:38.580 --> 0:07:40.889 are noticing a huge amount of money going out of 0:07:40.889 --> 0:07:45.389 your payslip for student deductions, then it's time to look 0:07:45.389 --> 0:07:47.309 into whether you should be paying off early. Because like 0:07:47.309 --> 0:07:49.860 I said at the beginning, those interest rates are not to 0:07:49.860 --> 0:07:53.970 be laughed at. They are really hefty. And by paying 0:07:53.970 --> 0:07:57.420 off large chunks, you can obviously reduce the time left 0:07:57.420 --> 0:07:58.770 you've got to pay. Because if you know you're going 0:07:58.770 --> 0:08:00.990 to be paying it off in full obviously, and you have 0:08:00.990 --> 0:08:04.529 that disposal income to do so. Do not bankrupt yourself 0:08:04.529 --> 0:08:06.870 trying to pay off your student loan. That is really important. 0:08:06.870 --> 0:08:08.220 I think a lot of people say, " Oh, well, I'll 0:08:08.220 --> 0:08:09.750 go to my parents and ask for money or I'll 0:08:10.530 --> 0:08:13.410 take out another loan to pay off my student loan." 0:08:13.740 --> 0:08:16.349 Please don't do that because it's a really flexible loan 0:08:16.349 --> 0:08:18.389 you're not going to find anywhere else. And that's why 0:08:18.389 --> 0:08:20.519 we call it, like I say, university tax as opposed 0:08:20.520 --> 0:08:23.309 to a loan. But yeah, there's two camps there really, 0:08:23.309 --> 0:08:25.230 and it very much depends on how it impacts you 0:08:25.230 --> 0:08:26.160 and your monthly earnings. 0:08:26.190 --> 0:08:28.170 That's really good to know I think. Yeah, so it 0:08:28.230 --> 0:08:31.380 all depends on what your income and outgoings look like. 0:08:31.380 --> 0:08:34.050 Because like I said I have conversations even with my friends 0:08:34.200 --> 0:08:36.179 who say, " Oh, I need to pay off my student loan." 0:08:36.179 --> 0:08:37.920 But I think it is a very personal decision. It 0:08:37.920 --> 0:08:41.098 is how much does it actually impact your income as 0:08:41.790 --> 0:08:42.510 to whether or not you should. 0:08:42.600 --> 0:08:45.450 It's so personal because also obviously some parents really struggle 0:08:45.450 --> 0:08:50.130 with it because our parents didn't have this or particularly 0:08:50.130 --> 0:08:53.549 my parents never went to uni, so they don't quite 0:08:53.880 --> 0:08:56.429 understand how ... they don't get why it's such a big 0:08:56.429 --> 0:08:58.439 amount of money, but I'm not worried about it. So 0:08:59.039 --> 0:09:01.800 the older generation looked at our generation and just can't 0:09:01.800 --> 0:09:03.929 imagine why we're not paying this off quickly. But it's 0:09:03.929 --> 0:09:05.670 because it's not really the same. 0:09:05.730 --> 0:09:08.849 Yeah, yeah. It's not how they view maybe mortgages where 0:09:08.849 --> 0:09:11.338 they may overpay their mortgages, it's different like you said. 0:09:12.360 --> 0:09:15.059 So if there's people who have children now or are 0:09:15.059 --> 0:09:18.330 thinking about having kids in the future, what could they 0:09:18.330 --> 0:09:21.689 be doing to think about their kids going to university 0:09:21.690 --> 0:09:24.929 before they hit 18 to make that all easier when 0:09:24.929 --> 0:09:25.470 it comes around? 0:09:26.340 --> 0:09:29.460 In terms of funding it, I suppose setting up pots 0:09:29.460 --> 0:09:32.189 for them for the future. We all know compound interest 0:09:32.190 --> 0:09:35.789 is king or queen. And therefore the earlier you start 0:09:35.789 --> 0:09:38.640 the better you can build that pot up. So things 0:09:38.640 --> 0:09:41.670 like junior ISAs or junior bank accounts for young people 0:09:41.670 --> 0:09:43.679 are really great ways to just put little bits of 0:09:43.679 --> 0:09:46.290 money away now. And hopefully when they get to it 0:09:46.290 --> 0:09:48.990 at 18 or whenever they choose to go to university, it's a 0:09:49.170 --> 0:09:51.450 nice pot for them there that can help them with 0:09:51.690 --> 0:09:54.990 maintenance or even other things to do with uni. 0:09:54.990 --> 0:09:59.880 Exactly, exactly. So Abigail, before we go, what three things 0:09:59.880 --> 0:10:02.519 would you recommend to someone that they can do to 0:10:02.520 --> 0:10:03.960 help them get a little bit richer? 0:10:03.990 --> 0:10:06.989 So, first thing would definitely be check that you're paying 0:10:06.990 --> 0:10:09.210 the right amount of student loan. So throughout the year, 0:10:09.210 --> 0:10:11.820 checking in on your student loan website and that you're 0:10:11.820 --> 0:10:15.960 paying the right amount. Secondly, would be looking to how 0:10:15.960 --> 0:10:17.820 many years you've got left to pay, because there might 0:10:17.820 --> 0:10:20.040 be a possibility that you might not pay the entire 0:10:20.040 --> 0:10:22.770 student loan back. So with plan one, that's after 25 0:10:22.770 --> 0:10:25.590 years, it gets wiped. With plan two, after 30. And 0:10:25.590 --> 0:10:28.049 with plan five, it's actually 40 years. But if you're 0:10:28.049 --> 0:10:30.718 in that plan two area and you've only got so 0:10:30.750 --> 0:10:34.320 many years left, you might not need to repay over 0:10:34.559 --> 0:10:37.319 if you are never going to repay in full. And 0:10:37.320 --> 0:10:39.719 then third and finally would be education. Please keep your 0:10:39.719 --> 0:10:42.390 education up to date and your knowledge because the plans 0:10:42.570 --> 0:10:45.420 have changed. We know that, we've just discussed it today. 0:10:45.420 --> 0:10:47.129 But a lot of people don't realize that the plan 0:10:47.129 --> 0:10:49.530 has changed. And this reflects everything within finance and money 0:10:49.530 --> 0:10:52.650 right now. Everything's changing. So yeah, keep your education up 0:10:52.650 --> 0:10:53.220 to date. 0:10:53.340 --> 0:10:55.530 Thank you so much. This has been a very insightful 0:10:55.530 --> 0:10:59.639 episode. It's Black Friday next week, which means Christmas will 0:10:59.639 --> 0:11:01.799 be here before we know it. So in the next 0:11:01.799 --> 0:11:04.169 episode, I want to see if there's such a thing 0:11:04.170 --> 0:11:07.140 as a cost- effective Christmas. Until then, be sure to 0:11:07.170 --> 0:11:09.810 hit follow and leave us a review. Thank you for listening.