Author Topic: Should I pay off my UK student loans (I mean morally)?  (Read 4280 times)

Butterfingers

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Should I pay off my UK student loans (I mean morally)?
« on: September 20, 2017, 05:36:25 AM »
I have about 10k left on a UK Plan 1 student loan. I am not planning to FIRE super-early (rather to downshift and take my time while the children are young) so retiring in my mid-to-late-50s will be fine by me.

I contribute about 50% of my base salary into my pension by salary sacrifice. The original plan was do this for two or three years to build up a pot (I started my pension much later than most as I was overseas during my twenties and early thirties). However, one of the nice side-effects (along with reduced income tax and NI) is that Im (just) below the threshold for student loan repayments.

It has got me thinking: I could do this all the way to retirement (assuming the rules on salary sacrifice dont change) while whacking money in the pension. Once Im able to draw that pension (57 maybe?) then retire, having not paid a penny more on my student loans. My retirement income would also be below the threshold, and my loans would be wiped when I reach 65 (i.e. before the state pension kicks in and pushes me over the threshold).

So, I know this is doable, and legal, but Im not sure that its moral to play the system like this. Your thoughts?

Raenia

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #1 on: September 20, 2017, 05:46:25 AM »
I'm not familiar with the specific rules on UK student loans, so I'll take your word for it that you've found a legal loophole.  For me, the decision would depend on what your salary is.  If you're making 30k and putting away 15k into the pension, then I'd say keep doing that, I don't think it's immoral.  If, on the other hand, you're making 60k and socking away 30k, I'd drop that down a bit and pay back the loan.  I wouldn't feel comfortable sticking taxpayers with the bill if I could afford to pay it off, basically.

The important question, though, is will you feel comfortable if you go through with it, or will you feel guilty for not paying back what you borrowed?  I would lean toward paying it back just to avoid the guilt, if you can afford to do it comfortably.

Dave1442397

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #2 on: September 20, 2017, 05:54:41 AM »
As far as I'm concerned, they set the rules up that way for a reason. If it were me, I would avoid paying the loan. Think about how pretty much any corporation approaches tax issues - it's all about maximizing profits.

katekat

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #3 on: September 20, 2017, 05:56:17 AM »
Since the UK gov is both your creditor and the creator of the repayment 'loophole' (or not-loophole if this is an intended consequence), personally I think you're in the clear, morally.

I think salary sacrifice is bad policy for reasons related to this (although I'm more concerned with it's relationship to NICs), but I think that problem is political, not personal, and don't judge anyone for taking personal advantage of gov incentives to save that have been deliberately set up.

Playing with Fire UK

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #4 on: September 20, 2017, 06:18:23 AM »
I'm not familiar with the specific rules on UK student loans, so I'll take your word for it that you've found a legal loophole. 

Confirming that this method does work in the UK and is legal.

I think it is morally fine.

If you reach retirement, and look at how all the taxes are being spent and how all the corporations are paying their taxes and you feel like you should pay more, you can always send HMRC a bar of gold.

Politically, the fact that some of the student loan terms have been changed after the fact makes me cheer when people find a way to pay back less. 

marielle

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #5 on: September 20, 2017, 06:22:05 AM »
Do the loans accrue any interest while you aren't required to pay them? I could see that being an issue if your income increases or the program changes.

katekat

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #6 on: September 20, 2017, 06:26:30 AM »
Do the loans accrue any interest while you aren't required to pay them? I could see that being an issue if your income increases or the program changes.

Interest rate for Plan 1 loans is always at or below inflation, so no real interest.

Butterfingers

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #7 on: September 20, 2017, 07:15:06 AM »
If you're making 30k and putting away 15k into the pension, then I'd say keep doing that, I don't think it's immoral.  If, on the other hand, you're making 60k and socking away 30k, I'd drop that down a bit and pay back the loan.  I wouldn't feel comfortable sticking taxpayers with the bill if I could afford to pay it off, basically.
I make 35k in a reasonably LCOL area (my mortgage is 500 a month). It's not loads, but I'm not just scraping by either. I could pay off the remaining loan in 18 months if I put my mind to it (though it would make no financial sense to do so).

Quote
The important question, though, is will you feel comfortable if you go through with it, or will you feel guilty for not paying back what you borrowed?  I would lean toward paying it back just to avoid the guilt, if you can afford to do it comfortably.
I'm a conflicted leftie. I feel it's my duty to pay tax for the common good, even though I don't like much of what they spend it on (bank bailouts, Hinkley Point, HS2, HMS Queen Elizabeth etc.). I know some people on the right will object to other areas of government spending, like welfare and the National Health Service. My intention in using this high rate of salary sacrifice was to build up a pension pot and not to dodge the student loan, and I don't feel at all bad about not paying the loan for a few years. I'm not sure how I feel about never paying it off, which is why I am seeking the wisdom of this crowd. I do feel aggrieved that people a few years older than me got their education for free (indeed got maintenance grants) whereas I had to work every hour I could while also trying to study just to keep my head above water. But perhaps that's not a justification for not paying it off.

Quote from: Dave1442397
Think about how pretty much any corporation approaches tax issues - it's all about maximizing profits.
Hmm. But don't you feel people are moral agents in a way that companies aren't?

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Since the UK gov is both your creditor and the creator of the repayment 'loophole' (or not-loophole if this is an intended consequence), personally I think you're in the clear, morally.
Interesting idea, but I'm not sure that the left hand knows what the right hand is doing. Salary sacrifice rules are one of those things that seem too good to be true, especially for higher-rate taxpayers (which I ain't), and they have all sorts of probably-unintended consequences on things like student loans and tax credits (which is a whole other debate for another time). Still, as you suggest, the fact that government is well aware that this situation exists and has done nothing to remedy it does suggest that they are content (for now) for people to take advantage.

dreams_and_discoveries

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #8 on: September 22, 2017, 12:13:50 PM »
I don't see it as unethical, as those are the rules that were created.

However, I don't know how realistic it is that you'd stay employed where you can do the salary sacrifice for the next I'm guessing 20 years? until your late 50's, and not need to access any of your income in the mean time?

How do the numbers fit into the long term plan? Is there a partner also working? Will you end up with too much in the pension?


NV Teacher

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #9 on: September 22, 2017, 09:05:23 PM »
When I borrow money I pay it back.

Playing with Fire UK

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #10 on: September 22, 2017, 11:37:28 PM »
I see your point NV Teacher. Are you familiar with the UK system?

It is designed so that most people won't pay back the full loan. They increase the loan amount so that the highest tax payers will pay back more and subsidise people who pay less tax. It is intended to be progressive.

There is a move to rename the latest version of our system a "graduate contribution" because so few people are expected to ever pay it off.

cerat0n1a

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #11 on: September 23, 2017, 01:50:14 AM »
When I borrow money I pay it back.

This is more like a tax than a loan, in spite of the name. It's not a question of finding a 'loophole', or reneging on a debt. The repayments are set at a level where, certainly for new loans, most people are not expected to pay it all back. Part of the reason it's set up this way is exactly so that people can take years out of work to look after children, as the OP wants to do.

The only reasons I could see to pay more than what is required by law would be if the OP is going to be wracked by guilt, or because there is always the chance of the government changing the rules after the fact. They've already overturned centuries of legal practice about not legislating retrospectively when it comes to student loans.

Butterfingers

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #12 on: September 26, 2017, 05:15:52 AM »
I don't see it as unethical, as those are the rules that were created.

However, I don't know how realistic it is that you'd stay employed where you can do the salary sacrifice for the next I'm guessing 20 years? until your late 50's, and not need to access any of your income in the mean time?

How do the numbers fit into the long term plan? Is there a partner also working? Will you end up with too much in the pension?
Thanks D&D. My original question was more of a hypothetical as I don't think salary sacrifice will survive in its current generous incarnation for the next 20 years. If I continued paying in the same amount until I turn 57, and assuming 4% annual real growth, I'd have about 590,000 in 2017 pounds. That probably is too much (at 4% withdrawal I'd be back over the student loan repayment threshold).

What I'm actually planning to do is continue until seven months before the fix on my mortgage ends (so I can use the higher salary when I'm switching mortgages). That will give me about 85,000 in my pension in late 2020. After that I will probably revert to a more normal pension arrangement of 15% or so, which will mean I will pay off the loan before retirement unless I downshift at that point. But if the current system is still in place, I know I will be tempted to go for another few years to bump up the pension.

beltim

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #13 on: September 26, 2017, 05:27:09 AM »
So, I know this is doable, and legal, but Im not sure that its moral to play the system like this. Your thoughts?

As far as I'm concerned, they set the rules up that way for a reason. If it were me, I would avoid paying the loan. Think about how pretty much any corporation approaches tax issues - it's all about maximizing profits.

Since the UK gov is both your creditor and the creator of the repayment 'loophole' (or not-loophole if this is an intended consequence), personally I think you're in the clear, morally.

I don't see it as unethical, as those are the rules that were created.

The OP knows it's legal (shown), and is asking for an opinion on whether it's moral.  Anyone who says it is moral because it is legal is completely missing the point.  Furthermore, I don't understand that opinion at all.  If there were a box on your tax form that allowed you to get 100 by taking it from someone else's taxes, would it be moral just because it is legal?

katekat

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #14 on: September 26, 2017, 05:34:14 AM »
So, I know this is doable, and legal, but Im not sure that its moral to play the system like this. Your thoughts?

As far as I'm concerned, they set the rules up that way for a reason. If it were me, I would avoid paying the loan. Think about how pretty much any corporation approaches tax issues - it's all about maximizing profits.

Since the UK gov is both your creditor and the creator of the repayment 'loophole' (or not-loophole if this is an intended consequence), personally I think you're in the clear, morally.

I don't see it as unethical, as those are the rules that were created.

The OP knows it's legal (shown), and is asking for an opinion on whether it's moral.  Anyone who says it is moral because it is legal is completely missing the point.  Furthermore, I don't understand that opinion at all.  If there were a box on your tax form that allowed you to get 100 by taking it from someone else's taxes, would it be moral just because it is legal?

My opinion stated above isn't that it's moral because it's legal. I don't feel I missed the point at all, maybe I didn't explain myself clearly.

My point was because you're being loaned money by the government, and the government are the ones telling you that you only have to pay it back in some circumstances, it's moral.

If say, my dad lent me 20k to go to University on the understanding I would pay it back, and later, the law said I didn't have to pay it back because loans to children aren't real or something, I would consider that very unfair to my dad.

If my dad lent me 20k to go to University, and when I graduated he said, "look, you can pay me back, but I'd rather you have money for retirement, so how about this -- pay that money into your retirement fund if you want instead of paying it to me", well, he's the creditor. If he wants to give me better loan terms because he wants to incentivise a certain behaviour in me, that's his prerogative.

cerat0n1a

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #15 on: September 26, 2017, 06:11:56 AM »
The OP knows it's legal (shown), and is asking for an opinion on whether it's moral.  Anyone who says it is moral because it is legal is completely missing the point.  Furthermore, I don't understand that opinion at all.  If there were a box on your tax form that allowed you to get 100 by taking it from someone else's taxes, would it be moral just because it is legal?

Surely the point is that there are many, many such boxes on the tax form. The OP is paying money into a pension fund through salary sacrifice. The contributions into that pension are free of income tax, and by using the salary sacrifice method, the employer avoids paying national insurance to the government. If nobody did that, the government would receive more money and could cut tax rates for everyone. I don't see the Student Loan system, which in the UK is essentially a poorly thought out part of the tax system. The government sets up incentives in the tax system to encourage particular behaviours. One of those is "save money in your pension and pay less tax"; another is "if you get an education and then turn out not to be one of the top few percent of earners, you don't have to pay for all of it." I don't see any moral argument to accept one of those incentives but not the other.

Playing with Fire UK

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #16 on: September 26, 2017, 06:25:53 AM »
If say, my dad lent me 20k to go to University on the understanding I would pay it back, and later, the law said I didn't have to pay it back because loans to children aren't real or something, I would consider that very unfair to my dad.

If my dad lent me 20k to go to University, and when I graduated he said, "look, you can pay me back, but I'd rather you have money for retirement, so how about this -- pay that money into your retirement fund if you want instead of paying it to me", well, he's the creditor. If he wants to give me better loan terms because he wants to incentivise a certain behaviour in me, that's his prerogative.

Absolutely. And if a lawyer said that you didn't have to pay your dad back at all because you didn't have a written agreement or were under 18 at the time, but your dad wanted the money back, that would be legally fine but morally abhorrent.

beltim

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #17 on: September 27, 2017, 04:31:53 AM »
So, I know this is doable, and legal, but Im not sure that its moral to play the system like this. Your thoughts?

As far as I'm concerned, they set the rules up that way for a reason. If it were me, I would avoid paying the loan. Think about how pretty much any corporation approaches tax issues - it's all about maximizing profits.

Since the UK gov is both your creditor and the creator of the repayment 'loophole' (or not-loophole if this is an intended consequence), personally I think you're in the clear, morally.

I don't see it as unethical, as those are the rules that were created.

The OP knows it's legal (shown), and is asking for an opinion on whether it's moral.  Anyone who says it is moral because it is legal is completely missing the point.  Furthermore, I don't understand that opinion at all.  If there were a box on your tax form that allowed you to get 100 by taking it from someone else's taxes, would it be moral just because it is legal?

My opinion stated above isn't that it's moral because it's legal. I don't feel I missed the point at all, maybe I didn't explain myself clearly.

My point was because you're being loaned money by the government, and the government are the ones telling you that you only have to pay it back in some circumstances, it's moral.

If say, my dad lent me 20k to go to University on the understanding I would pay it back, and later, the law said I didn't have to pay it back because loans to children aren't real or something, I would consider that very unfair to my dad.

If my dad lent me 20k to go to University, and when I graduated he said, "look, you can pay me back, but I'd rather you have money for retirement, so how about this -- pay that money into your retirement fund if you want instead of paying it to me", well, he's the creditor. If he wants to give me better loan terms because he wants to incentivise a certain behaviour in me, that's his prerogative.

So the three responses I quoted above all seemed to be part of the spectrum of "it's moral because it's legal" though yours was the least far along that axis.  Thank you for clarifying.

I guess my question is: was the program designed such that this is an expected outcome?  It seems from the various responses here that there is disagreement on that issue.

beltim

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #18 on: September 27, 2017, 04:39:28 AM »
The OP knows it's legal (shown), and is asking for an opinion on whether it's moral.  Anyone who says it is moral because it is legal is completely missing the point.  Furthermore, I don't understand that opinion at all.  If there were a box on your tax form that allowed you to get 100 by taking it from someone else's taxes, would it be moral just because it is legal?

Surely the point is that there are many, many such boxes on the tax form.

And the presence of those boxes on the tax form do not make checking them moral.

The OP is paying money into a pension fund through salary sacrifice. The contributions into that pension are free of income tax, and by using the salary sacrifice method, the employer avoids paying national insurance to the government. If nobody did that, the government would receive more money and could cut tax rates for everyone. I don't see the Student Loan system, which in the UK is essentially a poorly thought out part of the tax system. The government sets up incentives in the tax system to encourage particular behaviours. One of those is "save money in your pension and pay less tax"; another is "if you get an education and then turn out not to be one of the top few percent of earners, you don't have to pay for all of it." I don't see any moral argument to accept one of those incentives but not the other.

It seems to me the question is more, "is taking both benefits, providing a larger total benefit than the sum of the two individually, moral?"

cerat0n1a

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #19 on: September 27, 2017, 05:14:03 AM »
It seems to me the question is more, "is taking both benefits, providing a larger total benefit than the sum of the two individually, moral?"

I can't really see an argument for why it would be immoral? I completely accept the distinction that things can be legal without being moral, and I also buy the argument that structuring your affairs in a way that avoids or minimises tax can be both legal and immoral and of course we see large corporations like Amazon doing complex paper shuffling via Luxemburg & Ireland to exactly that end.

In this case, it seems like both the letter and the spirit of the tax system are being honoured. The student loan system is deliberately constructed in a way which means that the more you earn, the more you pay back, and most people will never pay back the full amount (Martyn Lewis reckons 95% won't of the current cohort). The income tax/NI system is set up the way it is to encourage people to save in ISAs & pensions in order to provide for themselves in old age so that the state doesn't have to.

I wonder whether the moral argument arises because it is described as a "loan" whereas it could more accurately be described as a graduate "tax" or "contribution."

Butterfingers, perhaps you could assuage your guilt (if there is any....) by (eventually) funding some public good with the money, rather than paying more tax?

beltim

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #20 on: September 27, 2017, 06:50:47 AM »
It seems to me the question is more, "is taking both benefits, providing a larger total benefit than the sum of the two individually, moral?"

I can't really see an argument for why it would be immoral? I completely accept the distinction that things can be legal without being moral, and I also buy the argument that structuring your affairs in a way that avoids or minimises tax can be both legal and immoral and of course we see large corporations like Amazon doing complex paper shuffling via Luxemburg & Ireland to exactly that end.

In this case, it seems like both the letter and the spirit of the tax system are being honoured. The student loan system is deliberately constructed in a way which means that the more you earn, the more you pay back, and most people will never pay back the full amount (Martyn Lewis reckons 95% won't of the current cohort). The income tax/NI system is set up the way it is to encourage people to save in ISAs & pensions in order to provide for themselves in old age so that the state doesn't have to.

I wonder whether the moral argument arises because it is described as a "loan" whereas it could more accurately be described as a graduate "tax" or "contribution."

Butterfingers, perhaps you could assuage your guilt (if there is any....) by (eventually) funding some public good with the money, rather than paying more tax?

As I don't know the details of the system, I'm not arguing that it is immoral.  However, one way it could be immoral is if the student loan forgiveness were designed to help educate those who otherwise would not be able to afford said education.  The test of affordability is income, but income is just a proxy for affordability.

That reminds me of an Ethics of ER thread that showed an astonishing number of posters on this forum were willing to take food stamps a program designed to provide financial assistance to those who otherwise would have trouble feeding their family during early retirement.  To me, that is a clear misuse of a financial assistance program, and is immoral.

From the descriptions, I haven't found anything to indicate the OP's course of action is immoral.  I originally just wanted to fight back against the idea that just because the tax system is set up in a certain way, that makes anything legal moral.

Goldielocks

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #21 on: September 27, 2017, 10:13:00 AM »
I don't see a problem in doing this.   I personally look for any tax deductions or tax conversion opportunities when filing each year, this is a valid argument, and if allowed, it is allowed.

However, look around.  Do you think many people may be doing this now or in the future?  It is quite possible that it may come to the attention of a money-strapped government, that this is happening.   It is actually a wonderful loophole, where you can voluntarily choose to divert your salary until later, and avoid a lot of repayments, rather than defer them or convert them to a lower tax bracket.   A bit too good to be true (for long).

Also, when the governing party changes power, items like this suddenly become hot political ideas.  "The 1% is hiding money to avoid paying their own student loans" makes a good headline.

My thought is that when the rules change, the loan and accrued interest will jump up and bite you.   Therefore, I would make the minimum interest payments on it each year... (I assume you can do this and not be disqualified from your loophole). 


Playing with Fire UK

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #22 on: September 28, 2017, 01:25:23 AM »
Although it is counter-intuitive; there is no minimum interest payments.

The payment is calculated solely from adjusted income and many, many people who are using no loopholes have payments that are less than the interest. It took me years out of university before I was keeping up with the interest - this is exactly what was meant to happen and how the programme was designed.

Although governments can do anything they like and retrospectively make things illegal, I don't think it is likely enough to warrant consideration. [If I was in the US, then I probably would, because their loans are more "real", whereas ours are kinda fake.]

Linea_Norway

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #23 on: September 28, 2017, 02:31:23 AM »
Just go for your plan. If the government finds out too many people do this, they will close the loophole and change the rules. So just be prepared in case you'll have to pay it back later. Until then, use the loophole.

Butterfingers

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #24 on: September 28, 2017, 06:50:04 AM »
Also, when the governing party changes power, items like this suddenly become hot political ideas.  "The 1% is hiding money to avoid paying their own student loans" makes a good headline.
That's true, but I think this is unlikely to be abused by the 1% because it limits you to 17,775 in annual income until you reach 65. Mind you, I think capital gains are not counted as income for student loans purposes, so I suppose there is scope there for some skulduggery. I think a more likely scenario is that the government seems to impose some restrictions on salary sacrifice, which is a pretty generous programme. So they might not be intending to clamp down on this "never repay" loophole but it could be collateral damage.

Looking at this whole issue from another angle, if I were a taxpayer who didn't go to university, would I be annoyed at people who did working the system? More annoyed than at other things the government spends our money on? Some people obviously would, but others would see it as years and years of relative penury to ensure an equally frugal retirement and think "poor fools" of the people who choose that route.

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That reminds me of an Ethics of ER thread that showed an astonishing number of posters on this forum were willing to take food stamps a program designed to provide financial assistance to those who otherwise would have trouble feeding their family during early retirement.  To me, that is a clear misuse of a financial assistance program, and is immoral.
That's a good point. In the UK case, someone could take the salary sacrifice route further and use it reduce their income to a level where they would be eligible for Universal Credit. So they would be socking a huge amount of money in their pensions, and using the government benefits (designed for true low wage earners) to make good much of the shortfall. Do those of you who think there is no moral issue dodging repayment of the student loan feel the same about the Universal Credit example? Is there a difference in kind, or only in degree?

Goldielocks

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #25 on: September 28, 2017, 04:46:50 PM »
Although it is counter-intuitive; there is no minimum interest payments.

The payment is calculated solely from adjusted income and many, many people who are using no loopholes have payments that are less than the interest. It took me years out of university before I was keeping up with the interest - this is exactly what was meant to happen and how the programme was designed.

Although governments can do anything they like and retrospectively make things illegal, I don't think it is likely enough to warrant consideration. [If I was in the US, then I probably would, because their loans are more "real", whereas ours are kinda fake.]

I realize that about no minimum payments, it appears to be similar to some of the loan forgiveness programs here...  I meant, that could OP calculate approximately what interest would be and pay that, even though it is more than the minimum? 

I guess it is possible that is not how the UK works.
Do the loans accept more than minimum payments?  Is there even interest applied to the loans, or is the interest being covered each year by the government?  When a person starts to earn a huge salary after years of low or no payments, did their loan balloon up?   If so, that could be a future problem for OP.

Butterfingers -- here, there is certainly backlash against students who take student loans and then deliberately plan on claiming bankruptcy within 3-7 years of graduation simply to clear the debt and not pay it off.   It was so bad, that in the US, they passed a law forbidding that.  BUT,  there is no upset about the government subsidizing university tuition for all of the national citizens taking full time classes.  (Subsidy is up to 50% of the cost, I think, and is paid directly to the university).
« Last Edit: September 28, 2017, 04:50:42 PM by Goldielocks »

katekat

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #26 on: September 29, 2017, 01:30:10 AM »
Quote
That reminds me of an Ethics of ER thread that showed an astonishing number of posters on this forum were willing to take food stamps a program designed to provide financial assistance to those who otherwise would have trouble feeding their family during early retirement.  To me, that is a clear misuse of a financial assistance program, and is immoral.
That's a good point. In the UK case, someone could take the salary sacrifice route further and use it reduce their income to a level where they would be eligible for Universal Credit. So they would be socking a huge amount of money in their pensions, and using the government benefits (designed for true low wage earners) to make good much of the shortfall. Do those of you who think there is no moral issue dodging repayment of the student loan feel the same about the Universal Credit example? Is there a difference in kind, or only in degree?

I think that's a great thought experiment that really hits at the edges of these feelings! My initial thought is that it's not okay to deliberately significantly lower your salary to get universal credit, but it's going to be a difficult one to untangle my conflicting intuitions on and come out with anything coherent. I don't feel that someone earning *close* to the line for UC and saving for retirement at 'normal' levels, allowing them more benefits they wouldn't get if not saving at all, is doing anything wrong, but then you get into some sticky ground when deciding what level of manipulating your salary is 'okay'.

Playing with Fire UK

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #27 on: September 29, 2017, 01:36:29 AM »
...
I guess it is possible that is not how the UK works.
Do the loans accept more than minimum payments?  Is there even interest applied to the loans, or is the interest being covered each year by the government?  When a person starts to earn a huge salary after years of low or no payments, did their loan balloon up?   If so, that could be a future problem for OP. ...

Some info here and here.

It is generally agreed that the majority of people will never pay back their full loan semi-random amount on a balance sheet, and everyone is fine with this. It is so wildly different to the US system, where the loans are actual loans. Calling the UK system a student "loan" is wildly unhelpful in many ways.

It is true that a future government could change the rules and fuck with the system, but they could also seize assets or kill our health service or quadruple our taxes. Many, many people would be more screwed than Butterfingers if the government changed the loans system so that you actually had to pay back your loans.

It is kind of like (what I understand about) your loan forgiveness programmes, except that everyone is on it, and we don't say loan "forgiveness" (which sounds like a loan is a sin or a crime to my ear), we say "write-off". Or maybe it is more like (what I understand about) you income based repayment, except with much less arduous terms, because a student loan isn't real money over here. A student loan is an agreement to pay X% of your salary above Y for Z number of years, or the balance of the loan + interest, whichever is lower.

You can make more than the minimum payments, and the interest is calculated and you can see how much it is. But it is widely (but not universally) considered to be a terrible idea for most people. When a person starts to make more money then their payments increase, but the loan amount doesn't increase due to the salary change.

If the OP had a US loan then I'd be strongly recommending either paying the loan or having the ready cash to pay the loan and penalties at any point.

Goldielocks

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #28 on: September 29, 2017, 02:00:16 AM »
...
I guess it is possible that is not how the UK works.
Do the loans accept more than minimum payments?  Is there even interest applied to the loans, or is the interest being covered each year by the government?  When a person starts to earn a huge salary after years of low or no payments, did their loan balloon up?   If so, that could be a future problem for OP. ...

Some info here and here.

It is generally agreed that the majority of people will never pay back their full loan semi-random amount on a balance sheet, and everyone is fine with this. It is so wildly different to the US system, where the loans are actual loans. Calling the UK system a student "loan" is wildly unhelpful in many ways.

It is true that a future government could change the rules and fuck with the system, but they could also seize assets or kill our health service or quadruple our taxes. Many, many people would be more screwed than Butterfingers if the government changed the loans system so that you actually had to pay back your loans.

It is kind of like (what I understand about) your loan forgiveness programmes, except that everyone is on it, and we don't say loan "forgiveness" (which sounds like a loan is a sin or a crime to my ear), we say "write-off". Or maybe it is more like (what I understand about) you income based repayment, except with much less arduous terms, because a student loan isn't real money over here. A student loan is an agreement to pay X% of your salary above Y for Z number of years, or the balance of the loan + interest, whichever is lower.

You can make more than the minimum payments, and the interest is calculated and you can see how much it is. But it is widely (but not universally) considered to be a terrible idea for most people. When a person starts to make more money then their payments increase, but the loan amount doesn't increase due to the salary change.

If the OP had a US loan then I'd be strongly recommending either paying the loan or having the ready cash to pay the loan and penalties at any point.

I get it.  A student loan is more like the government promising that your education won't cost you more than x% of your salary..  Tuition is a sliding scale based on your earnings after the fact...
For people with high salaries, it does end though?

Playing with Fire UK

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #29 on: September 29, 2017, 02:14:03 AM »
I get it.  A student loan is more like the government promising that your education won't cost you more than x% of your salary..  Tuition is a sliding scale based on your earnings after the fact...
For people with high salaries, it does end though?

Yes. Undergraduate tuition used to be free with grants for living costs, so we are still figuring out how this paid education thing works.

The purpose of the loan balance and tracking the interest rate is to figure out when the contribution stops for high earners.

Butterfingers

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #30 on: September 29, 2017, 02:35:15 AM »
My initial thought is that it's not okay to deliberately significantly lower your salary to get universal credit, but it's going to be a difficult one to untangle my conflicting intuitions on and come out with anything coherent. I don't feel that someone earning *close* to the line for UC and saving for retirement at 'normal' levels, allowing them more benefits they wouldn't get if not saving at all, is doing anything wrong, but then you get into some sticky ground when deciding what level of manipulating your salary is 'okay'.
Likewise, I don't think I can come up with a clear line where it crosses into "not okay". I think intent plays a role, as you suggest are you deliberately working the system, or are you trying to do your best, make reasonable and responsible financial decisions, and a bit of extra UC comes as a nice bonus? I suppose if you were really scrupulous, you could always not apply for UC, or return the extra UC if you were already in receipt of a smaller amount. A tough ask though when it's already in your account.

Linea_Norway

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #31 on: September 29, 2017, 04:13:28 AM »
My initial thought is that it's not okay to deliberately significantly lower your salary to get universal credit, but it's going to be a difficult one to untangle my conflicting intuitions on and come out with anything coherent. I don't feel that someone earning *close* to the line for UC and saving for retirement at 'normal' levels, allowing them more benefits they wouldn't get if not saving at all, is doing anything wrong, but then you get into some sticky ground when deciding what level of manipulating your salary is 'okay'.
Likewise, I don't think I can come up with a clear line where it crosses into "not okay". I think intent plays a role, as you suggest are you deliberately working the system, or are you trying to do your best, make reasonable and responsible financial decisions, and a bit of extra UC comes as a nice bonus? I suppose if you were really scrupulous, you could always not apply for UC, or return the extra UC if you were already in receipt of a smaller amount. A tough ask though when it's already in your account.

Another example: what if an American Mustachian retiree deliberately keeps the income from his side hustle under a certain limit to be able to obtain ACA. Is that morally problematic, if the person could have earned more?
I my opinion the state of a country makes a system. People use the system and use the financial backdoors that are available. The state will close the backdoors if they become too wide. Thread starter is using legal options.

worms

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #32 on: October 01, 2017, 03:57:46 AM »
One issue to bear in mind is the risk of reaching either your pension annual allowance or the Life Time Allowance for tax-free contribution to pensions.  The rules on this are complicated but the Allowance has been reduced several times in recent years.  My understanding is that your contributions include a calculation of the investment increase in sum value from the preceding year, so as time goes on, you might struggle to carry your plan through to retirement.

shelivesthedream

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Re: Should I pay off my UK student loans (I mean morally)?
« Reply #33 on: October 01, 2017, 04:26:23 AM »
I think it is moral to not pay off your UK student loan. The whole point of them is that repayments are finite and linked to your taxable income. They are not like other money you have borrowed and have to pay back - the government paid your tuition fees and then sees if it can get a bit back from those who earn a lot as a result of having a degree. I fully expect to pay back maybe 10% of mine. I am OK with that. A university degree is not a passport to automatic endless riches and the government realises this.

I would be somewhat uncomfortable if you were hiding all your money in offshore accounts for the express purpose of never paying off your loan. Putting it into a pension is exactly what the government wants you to do.