Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Thursday, May 03, 2012

Loan Trap

The trap can be illustrated by considering a salary below the 'official' average wage, yet still firmly within the trap: £26,000.

  • Remember that interest is continually applied every month regardless of any payment. This is an inexorable charge. If the salary creeps above this value then a forced payment is made.

Should I elect to repay?

  • This assumes salary falls below the threshhold of £21,000 (current level as at March 2012)

Student loans


Paying it ALL back


 Your income per yearInterest rate on your loan
 while you're studyingrate of inflation +3%
£21,000 or lessrate of inflation - no repayment made, but interest is added on
£21,000 - £41,000varies between the rate of inflation and the rate of
inflation +3% depending on your income
£41,000 or more rate of inflation +3%. This is the same as before graduation and while STILL studying

Remember too that the higher-rated RPI is used and NOT the CPI

Your monthly payments

You pay 9% of your residual income that exceeds the threshold of £21,000 a year.
This has the 'benefit' (for government - DA) of still attracting the highest yield in interest
when actually making payments.

If your course starts in September 2012 and you finish in June 2015 and in September 2015 
you’re earning £25,000 (£4,000 over the £21,000 threshold), you will be forced to pay 9%
of £4,000 which is £360 (annual charge). This means from April 2016 you pay back £30/month.
  • The £21,000 alluded to is the level as of March 2012. The actual level at April 2016, and
more than 4 years into the future, is completely unknowableDA

 Your income per year  Monthly repayments
 £21,000 and underno repayments (monthly interest is continually applied)
 £25,000  £30
 £30,000  £67.50
 £40,000  £142.50
 £50,000  £217.50
 £60,000 £292.50
Notice how a small increase (£25,000 to £30,000 = 20%) results in over a 100% increase in
repayments (£30 to £67.50)

  • Don't overlook the (VERY BIG) elephant in the room: interest is applied from the 1st day of the 1st year of any loan, which by definition is at least 3 years before graduation. Into a 2nd year of a loan attracts interest on that 1st year. During the 3rd year, interest is applied to the 1st and 2nd parts of the total loan. And any chance of a full-time career to fund the repayment. If such a career can be established.
Nothing up front