Why We Need To Change The Way We Speak About Student Finance

According to stats from the House of Commons Library, more than £17 billion is loaned to around 1.3 million students in England each year. And by the end of March 2021 the total figure reached £141 billion. The student loans system was put in place to ensure potential students weren’t put off studying in high education due to the upfront costs involved. And graduates do repay student loans, but only when they reach a certain threshold wage. And there’s a lot more to student finance than simply a massive loan you have to pay back.

How student finance can be misinterpreted

The average student who finished their course in 2020 had £45,000 in student finance loans. Now this seems like a lot of money, but the government only expects that 25% of current full-time undergraduates who take out loans will repay them in full. And that’s because no matter how much you take out you’ll only pay a very limited sum back. In fact only 9% of everything you earn over £25,000 (if you went to uni after 2012). If you went to uni before this date the earning threshold is slightly lower.

For example if you earned £30,000 a year you would pay back £450 a year to your student finance. So even if tuition fees rose to £100,000 a year you’d still only pay the same amount back. So while rising tuition costs aren’t great, they probably won’t affect a lot of people in the long run. And your student finance gets wiped after 30 years. So if you go to university straight after A Levels you could stop paying when you hit 52.

Confusion between student loans in different countries

There can be a lot of confusion between how the UK deal with student finance vs other countries like America. This article from the Metro a few years ago cites a poll carried out by Splash Financial which makes for interesting reading. At first it’s quite scary as it says that “the majority of people with a degree see their debt as an inescapable financial burden that negatively affects their everyday life”.

And a whopping 82% of respondents to the poll agreed that the debt affected major life decisions. With 43% saying buying a house was not possible, and another 43% said their loans prevented them from saving for retirement. As the Metro is a UK based publication you’d assume that they’d be talking about a UK study. But no the surveys respondents were based in the UK where student debt operates differently.

In the UK it’s unlikely that you wouldn’t be able to afford to buy a home just because of your student finance. Student finance doesn’t go on your credit file so it won’t show up as a debt to creditors or negatively impact your chances of getting a mortgage. So it acts in a totally different way to payday loans or credit card debt.

And if you’re working you’ll be enrolled on a pension scheme automatically. This isn’t enough on it’s own for your retirement but it’s a good start.

Why we need to change the way we think about student finance

If we continue to speak about student finance in a negative light it might make people question whether higher education is right for them. Decisions should be based on future careers and whether university is the best next step etc. And decisions shouldn’t be made around finances (where ever possible). And speaking about it in a negative fashion may put people under unnecessary stress, thinking it will damage them in the future.

Thinking and speaking about student finance in a negative fashion may encourage parents to make personal sacrifices with their own finances to pay for their children’s university journey. And while this is really nice for the kid, it could jeopardise their financial wellbeing in the long run.

Future repayments

But we also need to change the way we think about student finance when it comes to repayments. As the loan is fixed with low levels of interest and there’s an expiration date, overpaying your student finance shouldn’t be prioritised over other financial areas. For example overpaying your mortgage will save you far more money due to higher interest costs on the loans. Investing in your future, saving in your pension, putting together an emergency fund and saving for a deposit are all more important ways to use your money than worrying about overpaying your student finance.

If you’re in the privileged position to have no debt and have enough savings you may want to then overpay on your student finance. But it shouldn’t be a priority. This was a mistake I made when I left university as there was no education around this. I saw it as a debt and paid mine off in full within a year of leaving university. Although bear in mind I lived at home and tuition fees were less than £3,500 a year! I could have done so much more with that money, but there’s no point in dwelling.

We should see student finance as a tax and not a loan

Martin Lewis is campaigning to rebrand student debt and call it a ‘graduate contribution tax’ instead. And that’s exactly what it’s like. Your student finance comes out of your wages just like income tax or national insurance does. It’s automatic and you don’t need to do anything yourself. And because the amount is so small it’s just like paying slightly more tax as a graduate.

How do you see student finance? Do you need to change how you think about it?

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