Should There Be A Penalty For Paying Off Student Loans Early

There has been a lot of discussion going around about student debt and whether there should be a penalty imposed for early repayment. The thinking being that this is cheap debt and only wealthy people should be able to clear student loans early and a penalty would mean that many less wealthy people would avoid the penalty and let the debt run down slowly over time.

It has now been announced by Business Secretary Vince Cable that there will be no penalty for early repayment and some fear that this will encourage people who have other far more expensive debts to endeavour to pay off their student loans because they feel they are a long term burden even though they are likely to be much cheaper and a much better deal than almost any other loan they accumulate after leaving university.

I can see both sides of the argument but it also makes me wonder about the financial knowledge and maths skills of ex university students if they would not look at the financial implications of early repayment of student loans and the alternative options they might have and how they might get more benefit from repaying far more expensive credit card debt and loans instead.

Understanding The Impact Of Personal Loans And Debt

If the students of today are not fully aware of how finance works in daily life and the cost and impact of personal loans and credit cards compared to low cost student loans then they will face many of the problem of debt that have become clear in recent years. It is fair to argue that it was a lack of knowledge and understanding of the true cost of debt that got many of us into financial difficulties over the last few years. We are a nation up to our necks in debt both personal debt and government debt. If we are not doing anything to educate young people about the pitfalls of debt then we are letting them down badly.

It is clear to everyone that loans and debt are a part of our everyday life now. Whether that is a good thing or a bad thing is open to debate but debt is a part of almost everyone’s life these days. The least we can do is try to understand how it works and what the differences are between one debt and another. We should all be able to at least roughly work out which debts are most expensive and would be the better ones to pay off as soon as we can.

Perhaps there should be required classes as part of every university degree course to educate our young people about the way money and debt works. The classes should give some guidance on the benefits and disadvantages of loans and debt and how to work out the cost of those debts. Interest added to the cost of debt is money that is not available for future purchases or saving. This is a simple fact we all tend to ignore in our quest to acquire more stuff. It is a lesson we all need to understand, especially those embarking on their adult lives with an significant student loan around their necks.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

It was reported yesterday that the cost of food has risen more in the last year than it has for many years. Costs of all sorts of raw materials are higher now than they have been in a long while and we all know how expensive fuel has become.

Life is becoming more expensive and this as meant the cost of living and inflation are rising. The response to this from those who see this as an academic exercise is to say that interest rates will have to rise.

Raising interest rates has always been the standard response to rising prices. The idea is that it will slow down consumer spending and reduce wage inflation. That may have been reasonably effective in the past but will it work in the global economy we are now forced to live in and in a country where many people are struggling just to keep food on the table every day?

The UK is not that big a player in the world markets these days. We obviously play a part but the idea that an increase in interest rates in the UK will somehow change the world price of copper, coffee or oil seems unlikely.

Increasing interest rates is more likely to cause more business closures, more redundancies ad a lot more people finding their debt payments are more than they can afford with the result that there will be more bankruptcies and bad debts.

In the good old days, whenever they were, raising local interest rates did have a significant effect on reducing consumption and lowering inflation. It is hard to see how that would either work or be beneficial to the economy right now.

The most efficient economy of the future may be one that has nobody working so there will be nobody spending money to encourage inflation. Great in theory but hardly a practical solution.

When will those in power start worrying about the people and less about the hugely powerful banks and international corporations around the world. The middle East has recently been showing that people can only take so much before they react. Raising interest rates in the current climate could provoke reactions even in a mild mannered country like the UK.

High interest rates benefit the wealthy while causing problems for the less well off. If inflation is caused by excessive spending then we need to reduce the spending power of the wealthy first. They are the ones who are flush with money and able to throw it around without any worries.

In an economic climate where there are major cutbacks in government spending taking place and huge job losses are expected inflation should be one of the the last things we should need to worry about.

Stopping huge bonus payments and introducing higher taxes on people who earn large salaries would do more to reduce than making life tough for people who can barely afford to feed their families.

You have to wonder who the system we have is set up to benefit. The people who cause the problems seem to carry on regardless while the rest of the population suffers as we have clearly seen when it comes to the banking industry. Fundamental changes of approach to how we run our economy seem to be ugently required.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

The price of Brent Crude oil reached over $100 today for the first time since the peak prices reached in the summer of 2008. There are concerns about what is happening in Egypt and the risk that it might affect oil tankers travelling through the Suez Canal.

The likelyhood of problems with the Suez canal seem unlikely but there has been a steady rise in the price of oil over recent months and that is a serious concern. The steady price rise of oil has been blamed on rising demand as economies around the world begin to recover from the economic downturn and that should concern everyone.

If we have these price rises while consumers are subdued and ecomies are stuttering along just imagine what could happen to the price of oil if, and when, world demand starts to seriously pick itself up. The price of oil could double and that would bring problems to everyone as prices and inflation rapidly rise.

There is not much we as individuals can do to avoid these increased costs we may face in the future and the best thing we can do is to reduce our current spending and debts so our financial situation is as strong as we can make it so we can cope with whatever hppens in the world.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)