Quote:
Originally Posted by Dingfod
I think payments on student loan debt should be limited to a certain percent of a person's income.
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In the UK this is how it works. Above a certain threshold, the loans company takes (around) 9% of my (after-tax) income as loan repayment.
In fact, until recently, these loans were pegged at the Bank of England base rate + 1%, or the rate of inflation, whichever is lower. That makes my student loan the best loan I will ever have in my life, and I wish I didn't have to pay it off at all! Within the next decade I will probably pay it off, but until then it basically functions as an extra graduate 'tax'. Then I don't have to pay it any more.
New students have interest rates that push 6% but a similar repayment threshold, as well as insane loans. Mine came to £16,000 (four years of living expenses loan, and the government paid my fees in lieu of my low-earning parents). Today's students will have similar, but growing, living expense loans, and a loan on their fees even for low income parents.
If I studied today, I would emerge with at least £20,000 of living expense loan and £36,000 of tuition fee loan. At a low 4% interest rate (the new loans have interest rates of between 3% and 6% weighted on income) that accrues over £2000 a year in interest; it would take a salary of about £40,000 for a graduate to pay off
just the interest (and they would have a higher interest rate than 4%!). I would never pay such a loan off, and I doubt most will.
Apart from this effectively functioning as a tax that got brought in via the backdoor, it's not so bad: it gets wiped on death, or 25 (35? 45?) years after graduation.