Student loans have been a hot topic of late and the promise to scrap them by some politicians really engaged the younger voter in our last election!
Additionally, it is the time of year when many parents and students are looking at ways to fund university and this blog looks at the current merits of borrowing to fund education rather than relying on this being funded by family members.
So what are the rates of interest on Student Debt?
For loans taken out before 1st September 2012 the interest rate from 1st September 2016 is 1.25% and this rate is based upon the lower of RPI or the bank of England Base rate plus 1%.
For those taken out after that date interest rates have been set at RPI plus 3%. This rate is updated each September based upon the RPI figure from the previous March and interest is applied until the April after leaving the course and then on a sliding scale based upon earnings. The full rate of interest of RPI plus 3% is charged once earning exceed £41000.
The rise in inflation since March 2016 from 1.6% to 3.1%means that those who took out loans post 1st September 2012 now face a hike in interest rates from 4.6% to 6.1% which is 24 times the bank of England base rate! So a student now graduated will pay between 3.1% and 6.1%, depending on their income.
When does the loan have to be repaid?
The loan does not have to be repaid until income exceeds £21000. Once income exceeds this figure the individual will pay 9% of earnings over this amount deducted by their employer directly from salary.
Any of the loan still outstanding 30 years after the borrower become eligible to make payments is wiped off and the vast majority of students are unlikely to pay off their entire student loan.
Do Student loans make sense?
They do have soft merits such as maintain parity with peers; this is often very important to an 18 year old!
I thought it was about time we included a Sketch from our friend Carl Richards which appeared in the New York Times in his regular Sketch Guy column.
Many of our clients have got used to us telling them to spend money but many of them find this hard.
Life experiences give you an incalculable return on investment every single time so why is it hard to spend money on them.
The reason is often that experiences tend to feel like an extravagant expenditure of money, time and energy but I will keep telling you that you only have one shot at life and your goal is not to leave a small fortune to HMRC!
A very adventurous Carl and his wife illustrates this well with a tale of how he and his wife had the chance to
Last week’s election was the first vote in the UK since the EU referendum – aren’t we the lucky ones…. and who is to say how soon the next one will be?
In this blog, we explain why investors would be well served avoiding the temptation to make significant changes to a long term financial plans based upon predictions as to who may be in number 10. The data below has been provided by investment firm Dimensional Fund Advisers.
Exhibit 1: Growth of a Pound Invested in the Dimensional UK Market Index
January 1956–December 2016
For illustrative purposes only. Past performance is not a guarantee of future results. Index is not available for direct investment, therefore, their performance does not reflect the expenses associated with the management of an actual fund. Dimensional indices use CRSP and Compustat data. See “Index Descriptions” in the appendix for descriptions of index data.
Trying to outguess the market is often a losing game. Current market prices offer an up-to-the-minute snapshot of the aggregate expectations of market participants— including expectations about the outcome and impact of elections. While unanticipated future events (genuine surprises) may trigger price changes in the future, the nature of these events cannot be known by investors today. As a result, it is difficult, if not impossible, to systematically benefit from trying to identify mispriced securities. So it is unlikely that investors can gain an edge by attempting to predict what will happen to the stock market after a general election.
The focus of this election was Britain’s exit from the EU. But,