Yeah cheers, I'm now considering it carefully. I want to get rid of one of my mortgages first then will probably start doubling my contributions.
Tax - Wheres the incentive to earn more
- Thread starter ProStreet
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Yeah cheers, I'm now considering it carefully. I want to get rid of one of my mortgages first then will probably start doubling my contributions.
'One of...' oh to have such troubles...
Pay off the loan with the highest interest rate first. That's likely your student loan. Beyond that, your properties are likely appreciating in value whereas your student loan is not.
Lol I didn't mean to come across like that. Its just a flat that I can't sell and want to get rid of (and is depreciating in value due to it being a leasehold / no one wants flats or properties without a garden anymore!!).
Presumably your mortgage rates are extremely low as their rates are more directly set by the market?
High interest credit card -> Loans -> Student Loan -> Mortgages is probably the best course of action. Especially if you are going to continue your successful trajectory, earnings wise.
Got no credit card or loans so good there. Mortgages are fixed at c2% so yes student loan is the highest one. Ill aim to have it cleared within 5 years I think.
Soldato
The tax system does not promote hard work.
I do whatever I can to avoid the 40% bracket by buying shares pre-tax and paying more into a pension.
I do whatever I can to avoid the 40% bracket by buying shares pre-tax and paying more into a pension.
5 years on your salary? You can (and should) do much better than that. The compound effect will save you a fortune.
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The motivation is pretty clear, 50% take home pay is better than nothing. If you don't think it's worth the effort and you have the option to reduce your hours then go for it. Unfortunately the younger generation have well and truly been given the s*** end of the stick, it's very unfair compared to previous generations that graduated only 6 years ago, but there had to be a cutoff point. It is for all intents and purposes a graduate tax that is just dressed up as a loan, you'd have to be daft not to see that. I would treat it as such and not consider paying it off.I'm a graduate on the plan 2 student loan, im about 5 years into employment and earning a 'high' salary relative to most (c£70k). However any additional income I now earn is taxed at >50% despite only being in the 40% tax bracket. This is due to the student loan which is effectively an additional tax.
Even though I pay around £4k pa. on my student loan, due to the interest rate of RPI plus 3%, I'm not paying anything against the capital, only interest.
For example, I got my bonus of £6900 this month and my take home from that bonus was £3400.
Where is the incentive to earn more? Why is the government charging ludicrous rates of interest. Only the extremely high earners can afford to pay it off early, whereas the lower income don't pay anything at all, and like most of the time, the middle income earners pay the most of it.
I understand if people feel like I'm being selfish when im on a decent income, it just feels so demotivating to try to work harder when you get less than half of it in return.
Anyhow
Firstly your future income is not guaranteed, anything could happen in life, and if you paid it off that money is gone forever regardless of your circumstances. If you have the money to pay off the loan you could invest it in something like a Vanguard FTSE Global All Cap Index Fund, over the 30 year period until your "loan" is written off it would be very likely to beat the interest on it, though it's not guaranteed. You're probably not going to get a lot of sympathy here since you're on £70k, which will create some jealousy and come off as entitled to most people.
Broadly they pay for all of their public services by having a higher tax rate - for which they generally receive much better services, possibly indicating why they're mostly at or near the top of the world happiness index year after year. How much of that higher rate in % terms goes specifically to fund universities who knows, probably not that much.
Perhaps instead you could explain why a system where people are leaving university with £40-50k of debt at an interest rate of >5% is appropriate for a rich first world country when so many of our peers on the world stage can do it for much cheaper and in some cases free? Or why tuition needed to be tripled in the first place back in ~2012? (hint: it was because the gov at the time pursued a misguided austerity program which caused untold misery, lost economic growth, wage stagflation, ended the LDs as a political force (lol) etc)
You wouldn't have to 'gamble' anything. Simply balancing tax take vs expenditure is a bit pointless and simplistic. A country is not a household and running at a deficit isn't necessarily a problem if your economy is growing. Unsure why you'd include international students in the figures, clearly they would be charged differently - although some of those countries even offer free tuition to other EU citizens.
Please note that I specifically said I wasn't arguing for zero tuition fees, rather that the current system is unfair. The previous iteration of student loans were 'ok' if only because virtually all of what was paid back was capital from the loan rather than interest. Meaning people on relatively average salaries had a hope of clearing them well before the 30 year write off. Apparently 3/4 of people will not pay the current style loans off despite paying them for 30 years. If that's not an indication the system is broken then I don't know what is.
Not sure why you blanked the Norwegian oil money I mentioned but ok. Norway has probably the most money per citizen in the world and leverages their current trillion euros of wealth (compare to our pit of debt) to safeguard the lifestyle of its 5-6m citizens when the oil revenue runs out but maybe you're right and it's the higher taxes that made Norway what it is. The 75% tax on the oil perhaps.
Anyway I'm reading you comparing the UK situation of higher education attracting a personal £45K of debt with an interest rate of >5% as you say which gets written off after 30 years or costing nothing if you never earn enough with Norway where goods, services and rent costs 20-50% more. I don't think Norway is a useful example at all.
If you understand why higher education got kicked out of the budget and became loans then it sounds like wishful thinking when you suggest stuffing it in the budget (and growing the deficit) again.
You're throwing around the terms "unfair" and "broken" without describing what and why "fair" would be or what and why "fixed" would be.
Lets take the original example, making payments because you've succeeded through loan funded higher education is unfair and broken because... what? You've obviously benefited and are obviously in a position to make payments back into the scheme.
Not sure why you keep banging on about Norway. Some of your points regarding it aren't even valid e.g. yes living costs there are more but so are salaries in similar % terms. That list was just an illustration of what other rich european nations are doing with regards higher education, nowhere have I said we should immediately make tuition free (and I think this is the 3rd time I've had to repeat this now, are you even reading my posts?). It's a pipe dream.
Yes, the higher education budget was destroyed in an attempt to recover from the the GFC, and arguably the measures didn't even work. The fact the gov is throwing billions upon billions at all sorts of controversial projects (HS2, failed covid track and trace apps to name just a couple) shows the money is there to improve the system if they wanted.
So what would be fair for me? A system that gives people on fairly average [higher education] salaries a chance to clear these loans in a reasonable time without having a 30 year long take home pay hit (with all that entails such as reduced mortgage lending available) and without paying back multiples of what they borrowed due to interest. I think someone earning £50k would end up paying something like £150k without even clearing it over 30 years on the plan 2 scheme. On the whole is it even good value for the government? Something like 1/3 never pay anything, which is why they're looking at (or maybe already have?) moving the repayment threshold down to £19k. There's another issue actually with the current system which is that maintenance loans are partly means tested. Essentially if your household income is >X the amount that can be borrowed is reduced and the gov expects you or more likely your parents to pick up the slack. This is a terrible idea for lots of reasons not least that high household income doesn't imply your parents are going to cough up, many people have difficult relationships with their parents or they could have other financial commitments that make it impossible.
A system like we had only ~10 years ago would be better in my opinion, could even change the interest rate from base to RPI. It would allow people who earn an above average but not massive salary (i.e. probably the group that will pay back the most overall) to clear their loans well before 30 years and would not negatively affect those who don't manage to get a decent salary.
There are 1 or 2 interesting positives to our system though. Someone who's retired and fancies getting a degree can do it for free if their pension isn't too good!
**** me though for empathising with young people who are getting dealt an increasingly **** financial hand (not OP though apparently, lol) year after year.
Edit: Anyway it's obvious we won't agree on this - my position is things don't have to be this crap and yours is life's tough deal with it. Derailed this thread enough.
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I replied continuing from the previous talk about Norway being an example and if you read the post there I didn't make any reference to free so you banging on about free for the 3rd time is out of nowhere.
Apart from that, you seem to have noticed how the scheme can afford to only have 25% of people pay off the loan with the rest partly or never paying before it gets cancelled. The best performing users of the scheme fund the entire thing. Probably.
Absolutely the government can obtain money to pay the bill. They'd just borrow however many billions a year more and continue praying. As long as the **** doesn't hit the fan any time soon it will be a great deal for those who get to use that borrowed money without paying its true cost. That's not really fair or fixed.
There wasn't any talk about Norway specifically until you brought it up - I had included it simply because I added all european countries (I think anyway) where tuition is free, to do otherwise would've been misleading. You just got hung up on it because it's an obvious low hanging fruit when explaining why they can afford such public spending.
I would imagine the ones doing the heavy lifting on the current scheme aren't those at the very top - They will just pay it back early. The ones who will really pay out will be those that can't quite afford to do that and will either just miss paying it all back or pay it back soon before the loan would've been wiped.
It's not as if the money just disappears down a black hole. The universities spend money to run their courses, pay their staff who get taxed and spend money on taxed goods etc. It all goes towards economic growth.
Soldato
Earns “c£70k” a year with multiple mortgages but seems to have no understanding of interest rates or basic money management.
something smells a bit off..
something smells a bit off..
Universities aren't centres of learning anymore, they are businesses trying to turn a profit, and education has become secondary to that.
They aren't even skilling up our own workforce, they're just whoring themselves out to foreign students as they bring in the most money. It's pathetic, the other half is a lecturer and has whole cohorts without a single UK student, just a class of foreign student who increasingly can't speak or understand English as the university keeps dropping the language requirements to get more foreign students enrolled....
The whole higher education system is an absolute mess and needs radical reform. It needs reworking so its primary goal is producing relevantly skilled workers, instead of this cash-driven, short-sighted shambles it is at the moment.
Soon the Chinese university system will reach a critical mass of returning students we've trained up here in our desperation for money, and they'll just stop coming over, and we really will be up the creek without a paddle.
Soldato
That doesn't make any sense. Interest on a £40K student loan is £2,120 (5.6% x 40,000) but your paying off £4,000 a year which means the principal will have reduced by around £2k.
IMO your better office repaying your student loan as the rate of return (5.6% currently, minimum 3% + RPI) is probably higher then what you paying on your mortgage.
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Yeah I agree with that. International students are important but not at the expense of our own.
Need an exact figure really, (s)he said "over £40k" but not clear if means a bit over or a lot over.
Agree it's better to pay off the loan in this scenario, take out a bigger mortgage and pay it off if necessary.
Well if there are better options then what is the issue?
You don't seem to be acting particularly rational about this - if you're making a return on your investments greater than the rate at which you're charged for the loan then sure, no point paying it off.
That the student loan is still there and costing you is then irrelevant as your investments are making more and your net position is better than had you paid it off... so, what exactly is the issue?
I'm a graduate on the plan 2 student loan, im about 5 years into employment and earning a 'high' salary relative to most (c£70k). However any additional income I now earn is taxed at >50% despite only being in the 40% tax bracket. This is due to the student loan which is effectively an additional tax.
Even though I pay around £4k pa. on my student loan, due to the interest rate of RPI plus 3%, I'm not paying anything against the capital, only interest.
For example, I got my bonus of £6900 this month and my take home from that bonus was £3400.
Where is the incentive to earn more? Why is the government charging ludicrous rates of interest. Only the extremely high earners can afford to pay it off early, whereas the lower income don't pay anything at all, and like most of the time, the middle income earners pay the most of it.
I understand if people feel like I'm being selfish when im on a decent income, it just feels so demotivating to try to work harder when you get less than half of it in return.
Anyhow
Do you mind me asking what you do for a living to earn £70k a year? I've done a Masters in a science degree and I'm also 5 years into employment and would love to know how to get there.
Thanks