This autumn, Andrew Turbayevsky plans to attend the prestigious London School of Economics (LSE), where tuition fees are £9,250 per year – but he won’t be taking out a hefty student loan that others his age will.
Instead, the 18-year-old has saved for university since the age of 14, admitting he fears the future effect of inflation and how it could translate to extra interest on his borrowing.
The aspiring economist, hoping to study at LSE for his undergraduate degree, admits he is “really fortunate.” He has saved for years, putting money aside from his high-paying part-time job as a data analyst since 2020, and taking advantage of children’s savings accounts, which can sometimes pay better rates than those available to adults.
Turbayevsky adds that living in commuting distance of London means he will not have to pay for expensive accommodation, which he thinks will limit his maintenance costs each year to around £4,000 on top of the fees.
At the moment, he has saved enough money to fund the first two years of study, and hopes to eventually have enough to fund the final year as well.
Students from England going to university from this September face new loan arrangements, meaning they will make repayments for up to 40 years instead of 30, and start repaying once they earn a relatively low salary of £25,000.
Turbayevsky says these new terms, and the current high inflation environment, pushed him towards his decision.
“You do not know what inflation is going to be in the future and your loan is in effect tied to that,” he explains.
“Inflation is stubbornly high this year – and is looking more stubborn that first thought – and the Bank of England is desperately trying to lower that. Given all this, on my part it feels risky to take out a loan because I may end up paying back a very significant amount.”
Interest on new student loans is tied to Retail Prices Index (RPI) inflation – lower than for current borrowers, which can be up to RPI and an additional 3 per cent – which is currently over 11 per cent.
It is generally higher than the more commonly used Consumer Prices Index measure, which does not take account of housing costs, though the exact way it is calculated will change at the end of the decade.
“Later in my life, repaying my loan could come at the same time as taking out and paying back a mortgage – that adds more and more stress to your finances,” explains Andrew.
But he also thinks the Government needs to change its approach to student loans, to help those who are not able to do what he is.
“Student loans are good in that they provide funds for people to study, but there should be more leniency on the interest rate – that should be lower – and there needs to be more support for specific jobs.
“We’re currently in a country lacking doctors and teachers and the Government needs to encourage people to study. Making them take on repayments throughout their lives doesn’t feel sustainable in the long-run to the economy. We are making people do these jobs – which we need – by taking out a massive loan, which just doesn’t feel sustainable.”
Student loans function more like a tax than debt, with borrowers making repayments of 9 per cent of their salary over a set threshold – which is £25,000 a year for new borrowers from England.
Borrowers will not be chased for the debt if they never earn over the threshold, but the repayments do decrease their spending power. For example, someone earning an average salary of £33,000 a year would make £720 of annual loan repayments on current terms, decreasing their chance of saving for things like a house deposit.
Whether to take out a student loan or not is a difficult decision, with MoneySavingExpert.com founder, Martin Lewis, describing it as a “complex decision”, and warning getting it wrong could cost you tens of thousands of pounds.
He explains that it’s likely future mid to high-earning graduates who should be the ones considering not taking the loan as they are the people who are likely to clear it in full.
But he warns: “Paying upfront isn’t a no brainer,” because some borrowers end up not earning over the threshold at which they have to pay back, and some that only earn a little over it will not repay their loans in full. Therefore, opting not to take one involves spending money they would otherwise not have to pay.
He says an option is the “halfway house option” which is where the student takes the full loan but puts the money into a top savings account where hopefully it will grow.
The Department for Education has said student loans “protect lower earners and ensure those who benefit financially from higher education make a fair contribution towards its costs”.
