The case for student loans
Statistically it still pays to get a degree.
On average, according to the Department for Business Innovation & Skills, the salary for 21-30 year-old graduates is £23, 500, compared to £18, 000 for non-graduates in the same age range.
When the average wages for all working age people are compared, those figures go up to £39, 000 for graduates and £22, 000 for non-graduates, suggesting the disparity grows as careers develop.
Paying for university fees and/or living costs can therefore be seen as an investment in earning potential. Where scientific subjects are pursued, the added earning potential can be vast.
1. A £40, 000 cash gift ahead of university could save £30, 000 in interest costs
When students graduate and start earning, they have to repay their loans when their wages exceed a threshold - currently £21, 000. Interest is added at a rate linked both to their wage and inflation. If after 30 years there is still a blanace outstanding, it is written off.
Because of this complex arrangement, whether or not a loan represents "good value" is down to the borrower's likely earnings potential.
Telegraph Money has devised a calculator to show how this plays out in a number of scenarios.
For example a £40, 000 student loan debt could translate to £60, 000 or even £70, 000 worth of repayments over the course of the loan. This assumes an initial £40, 000 debt with a starting wage at graduation of £27, 000, rising at a rate of 3.5pc per year.
Avoiding the borrowing can thus be cost-effective.
2. Protect them from retrospective loan changes
With the £21, 000 repayment threshold already frozen – despite what was promised – and the potential for repayment rates on student loans to go up, there is no predicting what will happen over the next 30 years. Being committed to a huge loan debt with potentially changing terms is a major argument for avoiding student loans altogether.