Martin explains that it matters what you make – not what you owe
Martin debunked several student loan myths during his last show, which aired this week (March 11). But its main point was that what matters is what you earn, not what you borrowed. He stated, “It is what you earn that determines what you pay back, not what you borrowed. The amount you borrowed only determines whether you delete it or within the 30 years prior to deletion Not.”
“In England, 83% of graduates are predicted to not fully clear it up within 30 years, which means that in reality this doesn’t work like a debt for them. It is effectively an additional form of tax.”
Martin tested this concept with Oliver, who appeared on the show with his family and is hoping to study engineering at Durham University this year. Taking the example of someone earning £ 37,295, Martin asked Oliver how much he would repay for different loan amounts.
- They would repay £ 900 / year on a £ 20,000 loan. Martin asked Oliver, “So you are paying back 9% of your earnings over £ 27,295. OK Oliver, your loan is £ 20,000. You borrowed that much in total. You have left university and are now making £ 37,295, exactly £ 10,000 over the threshold.” How much are you paying back? “Oliver answered correctly:” 1% is £ 100, so 9% is £ 900. “
- You would still be paying back £ 900 / year on a £ 50,000 loan. Backing off with another example, Martin said, “Now let’s imagine you still have the same salary but your loan is £ 50,000. How much are you paying back? Oliver said correctly again,” Well, it depends Your salary. so still 900 pounds. “
- And you’d continue to pay back £ 900 on a £ 3 million loan. Martin then said, “Let’s say you have tuition fees of up to £ 1 million. You owe £ 3 million. But you are still making £ 37,295. How much are you paying back each year?” Again Oliver said, “Still £ 900.” Martin added, “Whatever your borrowing, you are still paying back £ 900 a year on that salary.”
For more information on how to do this, check out our Student Loan Mythbusting Guide.
Martins stated that most don’t start paying back until they earn more than £ 27,295
In addition to Martin’s explanation that student loan repayment is based on income, not loan size, he also discussed the following key points:
- Most don’t pay back until they earn more than £ 27,295 / year. Martin explained that after leaving university, you will only make repayment if you earn above a certain salary threshold. For students from England and Wales this will be £ 27,295 as of April 2021 (currently £ 26,575). If you are from Northern Ireland or Scotland, you will pay back below a lower threshold.
- You pay back 9% of whatever you earn on top of that. So when you make more, you pay back more.
- Like income tax, it will be paid back via PAYE and will not be included in your credit file. Most of the normal financial transactions and credit relationships that you have are listed on your credit record. However, student loans are not included. The only way credit, credit card, or mortgage providers will know if you have a student loan is by asking on application forms.
They generally only do this for larger transactions like mortgages where Martin stated that the lenders will check your disposable income – which can be lower if you are still paying back a student loan.
- Your loan is finally cleared. You cease to owe when you pay the debt or when 30 years have passed (from April of graduation), whichever comes first. This is 25 years if you are from Northern Ireland.
- You can end up paying back a lot, but student loans don’t work like a debt. Martin explained, “You could end up paying more than £ 50,000 total. Nobody should think I am saying this means it’s cheap – it can be expensive. If you are a decent earner, you may not be able to repay that £ 50,000 . ” Price tag, you could pay back well over £ 100,000.
“But my big point is that everyone says, ‘I’m so afraid of debt,’ but it doesn’t work like a debt. It won’t hang over your head. If you don’t make a lot, you don’t have to pay anything back. If If you earn well, you will pay back a shingle load. ”
Martin went on to explain that maintenance loans (living loans) are means tested (as opposed to tuition loans) so that parents are implicitly expected to add to any reduction, but never know. For more information, see our “Hidden Parental Contributions” section in our Student Loan Mythbusting Guide.