Student loan early repayment penalty proposal 'abandoned'

[dipsydoodle]

Plans to impose penalties on students in England who pay off university loans early are to be abandoned, ministers are expected to announce.

Business Secretary Vince Cable had intended to introduce an early repayment penalty.

It could have cost graduates thousands of pounds if they cleared their debts within 30 years of leaving university.

However, following a consultation it is understood the government has decided not to introduce the scheme.

http://www.bbc.co.uk/news/education-17053581

I've never understood what the supposed justification was for this in the first place.

[Magoo48]

1. Here's an idea: forgive all student loans worldwide now. Think it'll fly?

No debt slaves...

[T_i_B]

2. Sounds like the sort of thing the Lib Dems were in favour of.......

.....before they decided that they would much rather serve the Conservative Party then their own voters.

[supernova]

3. The Justification

if it's the same as over here is that by paying your student loan early, you are effectively nulling future income for the bank (in the form of your future interest).

The benefit in paying off early is all on the borrower.

[dipsydoodle]

4. Poor justification

because the interest foregone is regained when the funds are put back out to use again anyway.

Thanks for getting back me.

[muriel_volestrangler]

5. It can be seen as an advantage to those with the extra money available

If you are earning above the top level (£41,000 when payback starts, I think), the interest rate charged on the loan will be RPI+3%. If you have the money available to pay back more than the 9% per annum, you're effectively being able to invest that money at a guaranteed RPI+3% - which is more generous than you'll find with any safe saving now (and it's effectively tax-free). So being able to pay back early is an extra advantage for those with the extra money. You say "the interest foregone is regained', but that interest is above the market rate, so it won't all be regained.

Now, in practice, if people do have the extra money, most are more likely to save it for a house deposit (or a bigger one), at the moment, I'd say - while paying back a loan early is the ultimate in 'safety' (there's no bank to go bankrupt), it means you can't redirect the money to something else.

The very rich would be able to do both.