The median loan balance is only $15,000. If one starts off on $45,000 and your salary goes up 5% a year, Labour’s calculator says at present you would pay the loan off in five years nine months (if no voluntary repayments) and under their policy it would be paid off in four years eight months.
What this means is that the 10% extra deduction off your income (over the threshold of around $17k) would not occur for that 13 month period in around five years time.
The lifetime saving to you is around $4,000 Labour predicts. It will actually be less than that, but we’ll ignore how a dollar tommorow is worth less in today’s dollars.
Now you may want to reflect the lifetime cost of Labour’s increase in the top tax rate to 39%. You’ll start paying it after six years, when you are probably 28, based on 5% annual income increases.
By the time you are 35 the 6% extra tax on over $60,000 has cost you $5,700.
By the time you are 40, the 6% extra tax in over $60,000 income has cost you $17,000.
And in theory by the time you retire at 65, that extra 6% may have cost you $250,000.
Now it is not as simple as that, because the threshold for paying the 39% tax rate should move by inflation. Even allowing for 2% inflation adjustments to the $60,000 level, one still ends up $87,000 worst off over your woking life if you think the increase of the top tax rate from 33% to 39% was a good trade-off for getting your student loan paid off a couple of years earlier.
What is the moral of the story? There is no such thing as a free lunch.No tag for this post.