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Take Control Of Your Student Loan · A Little Bit Richer

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  Kia: It's Kia, this is A Little Bit Richer. And today
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  Kia: I'm taking a deep dive into the world of student
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  Kia: loans. Student loans are one of those things that it's so
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  Kia: easy to just take a passive approach to. You go
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  Kia: to uni, you get the loan, your repayments start, and
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  Kia: you more or less forget about it. But this podcast
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  Kia: is all about taking back control of all of your finances. And
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  Kia: the first step to getting that control is to understand
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  Kia: it. With me today, to help us get to grips
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  Kia: with all this, is Abigail Foster. Abigail is a chartered
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  Kia: accountant and she's a founder of Elent, a financial education
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  Kia: hub for students, employees, and parents. As part of this,
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  Kia: she runs workshops all about student loans, so I knew
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  Kia: I had to get her on to learn more. Abigail,
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  Kia: people listening to this can have all sorts of different
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  Kia: student loan repayment plans. It's changed a lot. So let's
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  Kia: begin. Could you talk me through all the different plans?
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  Abigail Foster: Okay. Yes, there's been many different plans. We'll talk about
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  Abigail Foster: the undergrad modern plans, so one, two, and five. So
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  Abigail Foster: one was if you went to university pre- 2012, I
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  Abigail Foster: think it was post- 1998, but pre- 2012, you would've
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  Abigail Foster: been paying the tuition loan at about 3K, very, very
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  Abigail Foster: nice amount of money, I wish I'd paid that. Then
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  Abigail Foster: you had plan two, which came in from 2012. So
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  Abigail Foster: any students that went to university from 2012 to 2023,
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  Abigail Foster: you were on plan two. And then any university student
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  Abigail Foster: that goes to university from this year, so from 2023
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  Abigail Foster: onwards, they are now on plan five.
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  Kia: Wow. Okay. So how do all of these loans work?
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  Kia: I mean, if you think about a loan, we think
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  Kia: about interest rates, right? So you might take out a
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  Kia: credit card at a certain amount of interest rate and
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  Kia: you now what you're going to pay. Is that the same when
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  Kia: it comes to student loans?
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  Abigail Foster: The interest rates on all three plans frustratingly all different.
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  Abigail Foster: Like to make it nice and complicated. So plan one
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  Abigail Foster: is either RPI, which stands for Retail Price Index, better
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  Abigail Foster: known as inflation; or the Bank of England base rate
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  Abigail Foster: plus 1%. So often what's happened with plan one is
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  Abigail Foster: the interest rate has been lower because it's that Bank
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  Abigail Foster: of England base rate plus 1%. Then for plan two,
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  Abigail Foster: they had the interest rate set at RPI plus 3%,
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  Abigail Foster: so Retail Price Index also known as inflation plus 3%.
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  Abigail Foster: So when inflation got crazy high last year and we
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  Abigail Foster: saw those 11. 9% numbers of inflation, we saw huge
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  Abigail Foster: interest on the student loans. Plan five, they decided as
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  Abigail Foster: their nicety for changing the plan, was they basically introduced
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  Abigail Foster: interest and cut it back to just RPI, so just inflation.
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  Abigail Foster: So there is a common misconception that the loan doesn't
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  Abigail Foster: increase over time, but that's not really true because it
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  Abigail Foster: does, it does increase by RPI. But they then assume
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  Abigail Foster: that that RPI means it's just increased with inflation therefore
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  Abigail Foster: the real value of the loan hasn't increased, but it
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  Abigail Foster: definitely does increase over time.
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  Kia: Okay. That's good to know that. So we need to
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  Kia: have a look and see, depending on what plan you're on,
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  Kia: that depends on what interest rate you are obviously going to have
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  Kia: on your student loan. So when it comes to repaying
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  Kia: then, because I know when I was in university not
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  Kia: too long ago, I know I've still got my baby
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  Kia: face, not too long ago, but when I was in university it was
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  Kia: always this thing where I had friends say, " I've taken
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  Kia: out X amount, now I'm going to have to pay it straight
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  Kia: away." I've graduated and it's almost like the next day
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  Kia: after graduation you're going to have to pay it back. But I
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  Kia: want to ask you, what salary do you normally have
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  Kia: to be on before you start paying off your student loan?
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  Abigail Foster: Okay, with the student loan, again, let's go through one,
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  Abigail Foster: two, and five. So with plan one you have to
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  Abigail Foster: be earning over £22, 015, if we're getting specific. With plan
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  Abigail Foster: two, it's 27,295. And then with the new plan five,
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  Abigail Foster: you need to earn more than 25 grand a year.
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  Abigail Foster: So this is your yearly salary. So let's say you are
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  Abigail Foster: on 25K, then you wouldn't pay anything back on this
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  Abigail Foster: new plan yet until you earn over 25K. So, you only
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  Abigail Foster: pay back 9% over those thresholds. Something to be careful
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  Abigail Foster: though is that what tends to happen is they'll take
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  Abigail Foster: your yearly salary, divide it by 12 and then look
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  Abigail Foster: at your monthly payslip. So if you don't always earn
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  Abigail Foster: the same every month, you might be overpaying the student loan.
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  Abigail Foster: And that's something to look out for because it's worked
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  Abigail Foster: out on a yearly basis, but on your payslip can
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  Abigail Foster: often be then brought back to that monthly amount. So yeah.
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  Kia: That makes sense. I think it's good to know that. I've seen
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  Kia: people online have decided to take control of their student loans
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  Kia: and log in and see if they're overpaying and have
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  Kia: been able to actually make those claims back. But I
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  Kia: just want to kind of go back to what you
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  Kia: said. So when you earn over a certain threshold, you
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  Kia: mentioned it's any income over that. I think people sometimes
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  Kia: get confused if it's, like you said, the new plan, it's
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  Kia: when you earn over £25, 000, some people think that they're going to pay back 9%
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  Kia: of everything, but it's only the income over, right?
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  Abigail Foster: It is only the income over the threshold across all
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  Abigail Foster: the plans. So if you are earning 30K, you are
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  Abigail Foster: paying 9%, on that plan five, you're paying 9% on
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  Abigail Foster: 5K. So the difference between your 30,000 salary and that
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  Abigail Foster: 25K threshold, 9% on that. But it does add up.
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  Abigail Foster: Obviously the more you start earning, that 9% is quite
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  Abigail Foster: a large chunk, which is why we commonly call it
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  Abigail Foster: a university tax as opposed to a loan because you
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  Abigail Foster: pay more the more you earn.
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  Kia: Yeah, absolutely. But I think yeah, that was good for you to
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  Kia: explain that because I think sometimes ... I know I've spoken
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  Kia: to people who have almost avoided taking out, especially maintenance
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  Kia: loans, and that's obviously the loan when you're in university
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  Kia: that will help you live. And I used that because
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  Kia: I moved away from home. And have avoided taking out
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  Kia: more money because they're like, " No, it's a loan and I've got to pay it back
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  Kia: and I don't want to graduate and have to pay
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  Kia: it all back. Let me just live within my means
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  Kia: and maybe make it harder for myself." But I think,
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  Kia: yeah, the way you explained it that definitely does help. We
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  Kia: mentioned student loan. Now that operative word loan, will that
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  Kia: affect people's ability in the future when it comes to
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  Kia: getting a mortgage or any other type of loan having
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  Kia: a student loan out?
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  Abigail Foster: It can do, so especially with a mortgage because there
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  Abigail Foster: is a rule which is that the student loan doesn't
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  Abigail Foster: impact your credit score, which then commonly misconstrued as therefore
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  Abigail Foster: it doesn't impact your mortgage. That's not true. So it
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  Abigail Foster: doesn't impact your credit score in the terms it doesn't
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  Abigail Foster: get ... it's not information that filters into your credit rating
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  Abigail Foster: agencies, which then provide you with a credit score. But
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  Abigail Foster: it can affect how much mortgage you get. Because if
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  Abigail Foster: you went to a mortgage provider or you went to
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  Abigail Foster: a mortgage advisor, et cetera and said, " Right, this is
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  Abigail Foster: my income." They would say to you, " Okay, what are your outgoings?"
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  Abigail Foster: And they will look at your outgoings, one being your
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  Abigail Foster: student loan. So if you are earning over that threshold and
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  Abigail Foster: you've got quite a large chunk coming out for student
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  Abigail Foster: loans, that can affect how much you can borrow. So
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  Abigail Foster: that's where it can affect your mortgage. There is discussions
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  Abigail Foster: around if it can stop you getting a mortgage, it
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  Abigail Foster: shouldn't be able to stop you, it's not like a bad
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  Abigail Foster: note on your credit score. It is just something to
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  Abigail Foster: be aware of that it can reduce how much mortgage you
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  Abigail Foster: can get.
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  Kia: I think that's good to know. So it is just part
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  Kia: of the affordability checks that the mortgage providers do. It
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  Kia: is part of what are you paying, what are your outgoings, and
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  Kia: that's just one of them if you don't earn over
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  Kia: that. I think that's good to know. Now there's a
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  Kia: big question, and one I know a lot of people
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  Kia: want to know, should we, as in former students who've
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  Kia: now graduated, should we prioritize paying off our student loans
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  Kia: or should we just carry on as we are?
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  Abigail Foster: When it comes to paying off your student loan, you
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  Abigail Foster: need to put yourself in one of two camps. So
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  Abigail Foster: one, if you are not earning enough that you are
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  Abigail Foster: noticing it on your payslip, leave it. Just leave it
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  Abigail Foster: be. Because once you pay off that student loan, if
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  Abigail Foster: you've voluntarily chosen to, you can't go back to the Student
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  Abigail Foster: Loans Company and get that money back. And that money
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  Abigail Foster: is gone. So whilst you might be taking down the
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  Abigail Foster: loans, but you will end up with less money. And
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  Abigail Foster: obviously less money in your pocket, which you could have
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  Abigail Foster: used for better things. If you fall into the other bracket where you
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  Abigail Foster: are noticing a huge amount of money going out of
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  Abigail Foster: your payslip for student deductions, then it's time to look
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  Abigail Foster: into whether you should be paying off early. Because like
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  Abigail Foster: I said at the beginning, those interest rates are not to
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  Abigail Foster: be laughed at. They are really hefty. And by paying
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  Abigail Foster: off large chunks, you can obviously reduce the time left
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  Abigail Foster: you've got to pay. Because if you know you're going
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  Abigail Foster: to be paying it off in full obviously, and you have
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  Abigail Foster: that disposal income to do so. Do not bankrupt yourself
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  Abigail Foster: trying to pay off your student loan. That is really important.
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  Abigail Foster: I think a lot of people say, " Oh, well, I'll
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  Abigail Foster: go to my parents and ask for money or I'll
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  Abigail Foster: take out another loan to pay off my student loan."
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  Abigail Foster: Please don't do that because it's a really flexible loan
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  Abigail Foster: you're not going to find anywhere else. And that's why
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  Abigail Foster: we call it, like I say, university tax as opposed
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  Abigail Foster: to a loan. But yeah, there's two camps there really,
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  Abigail Foster: and it very much depends on how it impacts you
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  Abigail Foster: and your monthly earnings.
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  Kia: That's really good to know I think. Yeah, so it
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  Kia: all depends on what your income and outgoings look like.
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  Kia: Because like I said I have conversations even with my friends
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  Kia: who say, " Oh, I need to pay off my student loan."
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  Kia: But I think it is a very personal decision. It
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  Kia: is how much does it actually impact your income as
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  Kia: to whether or not you should.
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  Abigail Foster: It's so personal because also obviously some parents really struggle
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  Abigail Foster: with it because our parents didn't have this or particularly
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  Abigail Foster: my parents never went to uni, so they don't quite
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  Abigail Foster: understand how ... they don't get why it's such a big
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  Abigail Foster: amount of money, but I'm not worried about it. So
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  Abigail Foster: the older generation looked at our generation and just can't
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  Abigail Foster: imagine why we're not paying this off quickly. But it's
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  Abigail Foster: because it's not really the same.
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  Kia: Yeah, yeah. It's not how they view maybe mortgages where
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  Kia: they may overpay their mortgages, it's different like you said.
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  Kia: So if there's people who have children now or are
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  Kia: thinking about having kids in the future, what could they
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  Kia: be doing to think about their kids going to university
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  Kia: before they hit 18 to make that all easier when
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  Kia: it comes around?
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  Abigail Foster: In terms of funding it, I suppose setting up pots
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  Abigail Foster: for them for the future. We all know compound interest
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  Abigail Foster: is king or queen. And therefore the earlier you start
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  Abigail Foster: the better you can build that pot up. So things
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  Abigail Foster: like junior ISAs or junior bank accounts for young people
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  Abigail Foster: are really great ways to just put little bits of
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  Abigail Foster: money away now. And hopefully when they get to it
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  Abigail Foster: at 18 or whenever they choose to go to university, it's a
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  Abigail Foster: nice pot for them there that can help them with
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  Abigail Foster: maintenance or even other things to do with uni.
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  Kia: Exactly, exactly. So Abigail, before we go, what three things
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  Kia: would you recommend to someone that they can do to
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  Kia: help them get a little bit richer?
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  Abigail Foster: So, first thing would definitely be check that you're paying
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  Abigail Foster: the right amount of student loan. So throughout the year,
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  Abigail Foster: checking in on your student loan website and that you're
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  Abigail Foster: paying the right amount. Secondly, would be looking to how
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  Abigail Foster: many years you've got left to pay, because there might
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  Abigail Foster: be a possibility that you might not pay the entire
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  Abigail Foster: student loan back. So with plan one, that's after 25
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  Abigail Foster: years, it gets wiped. With plan two, after 30. And
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  Abigail Foster: with plan five, it's actually 40 years. But if you're
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  Abigail Foster: in that plan two area and you've only got so
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  Abigail Foster: many years left, you might not need to repay over
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  Abigail Foster: if you are never going to repay in full. And
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  Abigail Foster: then third and finally would be education. Please keep your
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  Abigail Foster: education up to date and your knowledge because the plans
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  Abigail Foster: have changed. We know that, we've just discussed it today.
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  Abigail Foster: But a lot of people don't realize that the plan
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  Abigail Foster: has changed. And this reflects everything within finance and money
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  Abigail Foster: right now. Everything's changing. So yeah, keep your education up
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  Abigail Foster: to date.
• 10:53
  Kia: Thank you so much. This has been a very insightful
• 10:55
  Kia: episode. It's Black Friday next week, which means Christmas will
• 10:59
  Kia: be here before we know it. So in the next
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  Kia: episode, I want to see if there's such a thing
• 11:04
  Kia: as a cost- effective Christmas. Until then, be sure to
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  Kia: hit follow and leave us a review. Thank you for listening.