The Economy

[najaB]

Considering post-2012 loans are written off thirty years after they first became liable to be repaid this feels like a small problem.

Effectively it's the State paying for education, without it only appearing on the books 30 years later (in a large percentage of cases). I'm not convinced this is a bad thing.

 

[tony_mac]

So that £50,000 loan will take around about 37 years to pay off.

You haven't taken the interest being added into account - as it stands this year, earning £40,000 isn't even enough to pay back a single penny!

 

[Domh245]

And don't forget the high levels of interest on the loans. RPI+3% whilst you are studying, and then anywhere between RPI (for those on less than £25k) and RPI+3% (for those on more than £45k)

 

[ainsworth74]

Effectively it's the State paying for education, without it only appearing on the books 30 years later (in a large percentage of cases). I'm not convinced this is a bad thing.

The State paying for education is undoubtedly a good thing. Using this mechanism for doing it I'm less convinced about. At the very least it seems underhand.

You haven't taken the interest being added into account - as it stands this year, earning £40,000 isn't even enough to pay back a single penny!

That's a very good point but I was trying to keep it simple!

 

[Bromley boy]

The time bomb I've been idly wondering about (and I don't think anyone is really talking about) is the student loan debt that's building up and will never, ever, be repaid. Post-2012 loans are around an average of £50,000 (my pre-2012 loan was about half that for comparison) and repayments are only taken once you're earning above £25,000 (pre-tax) and then the repayment is 9% of your earnings above that level. So if you're earning £40,000 (which is well above the average salary) you'll repay £112 per month. So that £50,000 loan will take around about 37 years to pay off. Considering post-2012 loans are written off thirty years after they first became liable to be repaid this feels like a small problem. Especially when you consider there are not an inconsiderable number of graduates who are earning less (often much less) than £40,000...

And don't forget the high levels of interest on the loans. RPI+3% whilst you are studying, and then anywhere between RPI (for those on less than £25k) and RPI+3% (for those on more than £45k)

I suppose inflation will naturally reduce the value of the original debt over time, and a few grads will go on to be very high earners who will repay their loans in full + high interest levels, so will subsidise several of their low earning contemporaries.

Effectively it's the State paying for education, without it only appearing on the books 30 years later (in a large percentage of cases). I'm not convinced this is a bad thing.

Wouldn’t it be better if fewer people went to university and their education was entirely state sponsored (which is how things were for my parents’ generation).

The current system has reduced social mobility: if you’re not wealthy and/or want to do a degree which won’t lead to well paid employment, you’d be less likely to go today than you would have been in the 1970s.

 

[Barn]

I think that outcome for student loans is by design. In some ways it is progressive - for the poorest graduates it effectively does not matter how much the loans were or what the interest rate is because any excess will be written off. For those graduates it functions very much like a graduate tax (which is what many opponents of the loan system call for). The biggest factor for poorer graduates is the salary at which payments start and the rate of salary deduction. The starting salary was increased when larger fees were permitted.

It is less progressive at the higher ends of the income scale. The very richest graduates will pay their debt off quickly, minimising the effect of interest. Those in the middle are probably the hardest hit, as they may be faced with many years of interest accumulating.

 

[Barn]

The current system has reduced social mobility: if you’re not wealthy and/or want to do a degree which won’t lead to well paid employment, you’d be less likely to go today than you would have been in the 1970s.

Is that borne out in the evidence?

 

[najaB]

Wouldn’t it be better if fewer people went to university and their education was entirely state sponsored (which is how things were for my parents’ generation).

That might be a better outcome overall, but ideally it would be because there were attractive career paths other than higher academic education. However, in common with many Western democracies, we have downplayed the importance of skills training (and invested less in them).

 

[CC 72100]

That might be a better outcome overall, but ideally it would be because there were attractive career paths other than higher academic education. However, in common with many Western democracies, we have downplayed the importance of skills training (and invested less in them).

Spot on. Tony Blair and his desire for 50% of young people to go to University has a lot to do with that in this country. This 'target' only results in people from whom university is not the best option going to uni, apprenticeships being undervalued, and University degrees being worth 'less' due to how commonplace they have become (bad for all). And probably a good deal of those people who went to Uni because it was 'the' path to go down but in reality probably wasn't for them are the most unlikely to pay it back. That's where the student loans time bomb started.

 

[Bletchleyite]

Spot on. Tony Blair and his desire for 50% of young people to go to University has a lot to do with that in this country. This 'target' only results in people from whom university is not the best option going to uni, apprenticeships being undervalued, and University degrees being worth 'less' due to how commonplace they have become (bad for all). And probably a good deal of those people who went to Uni because it was 'the' path to go down but in reality probably wasn't for them are the most unlikely to pay it back. That's where the student loans time bomb started.

Of course the real reason for his target was to massage the unemployment figures.

 

[Jonny]

Of course the real reason for his target was to massage the unemployment figures.

Apparently ^workfare^ and training-type participants are also excluded from the figures. The key is "Unemployed and claiming benefit..."

 

[ainsworth74]

Of course the real reason for his target was to massage the unemployment figures.

Which of course leads us neatly back to the earlier part of the thread about unemployment and "lies, damned lies and statistics"

 

[thejuggler]

The student loan system isn't what it says on the tin.

If it's a payment as a percentage of salary above a certain level its a form of income tax. However someone tried to call it a 'graduate tax' and were berated.

Rename, repackage, represent and everyone now thinks its a loan. It isn't and never will be as the fundamental principle of a loan is it has to be repaid.

 

[underbank]

Rename, repackage, represent

Which was Gordon Brown's favourite party trick, but it never actually worked as most people saw right through his plans. Take tax credits - he renamed certain benefits as "tax credits" in the hope of them being netted against tax revenue instead of being shown as spending. Take PFI - classic off-balance-sheet financing which he encouraged to try to reduce the national debt. If he'd spent as much time and effort on actually improving the economy rather than trying to fiddle the figures the country may be in a much better state today.

 

[ainsworth74]

Take tax credits - he renamed certain benefits as "tax credits" in the hope of them being netted against tax revenue instead of being shown as spending.

Urgh, don't talk to me about Tax Credits. If you were designing something to be as complex and confusing as possible then Tax Credits are definitely the system you'd design. Trying to explain to someone that their award is usually based off of their income for the last tax year (which often involves explaining what a tax year is) not the current tax year and therefore not their current income (unless their current income is £2,500 different either way) plus despite the fact that they're being paid Tax Credits right now those payments are provisional until after the current tax year when HMRC will look at their actual entitlement for the tax year just gone and then they may end up owing money or needing to be paid more. Then you have to try and decipher the decision notices which are often complete gobbledegook and if you try and ring them to find out what's going on then usually you'll be waiting for thirty to forty minutes and then you'll speak to someone who can't actually tell you anything useful anyway!

The most godawful system that could ever have been devised with seemingly a key design requirements of being an difficult to comprehend as possible and then administered in way where maladministration is baked in (it's not just me saying that a number of Upper Tribunal judges have expressed harsh views on HMRC's administration of Tax Credits in their publicly available decisions).

 

[WelshBluebird]

The student loan system isn't what it says on the tin.

If it's a payment as a percentage of salary above a certain level its a form of income tax. However someone tried to call it a 'graduate tax' and were berated.

Rename, repackage, represent and everyone now thinks its a loan. It isn't and never will be as the fundamental principle of a loan is it has to be repaid.

Except it isn't really a graduate tax either because there IS an amount to be repaid (after which you don't pay anymore), its just that amount is written off after a period of time if you haven't paid it off.

 

[Barn]

Except it isn't really a graduate tax either because there IS an amount to be repaid (after which you don't pay anymore), its just that amount is written off after a period of time if you haven't paid it off.

It is what it is. But it is missing one of they key negative features of a loan, which is worrying about whether you will be able to meet the payments each month if you lose your job or your income falls. For that reason some of the talk of 'indebtedness' isn't really appropriate. Anybody who has had both will know that a student loan doesn't 'feel like' any other type of loan.

 

[WelshBluebird]

It is what it is. But it is missing one of they key negative features of a loan, which is worrying about whether you will be able to meet the payments each month if you lose your job or your income falls. For that reason some of the talk of 'indebtedness' isn't really appropriate. Anybody who has had both will know that a student loan doesn't 'feel like' any other type of loan.

Of course, most people taking a student loan will be (and I mean this in the nicest way possible, I was one not long ago!) naive and inexperienced 18 year olds who generally have little idea how money really works and certainly will have no idea what a loan of any kind actually "feels like". So you tell them "student loans" and their mind instantly goes to the idea of debt and all you associate with problem loans etc.

I am just speaking from my own experience, but regardless of what it "feels like", the idea of having to take out around £30k worth of loans to go to university when you grew up in a fairly poor area with probably lower than average household income was a tough idea to battle out of my head, and that is coming from someone who understood the system pretty damn well and knew it wasn't "like other loans". Now that figure is more like £50k and I can certainly see how that "idea" (no matter how inaccurate), could be an issue.

Of course, the big question (and the one that brings us back on topic) is what does the government see it as? Has the government actually budgeted for the loans to be paid back or not? (I personally suspect they haven't even though about it and just left it as a problem for future governments to work out).

 

[NSEFAN]

Except it isn't really a graduate tax either because there IS an amount to be repaid (after which you don't pay anymore), its just that amount is written off after a period of time if you haven't paid it off.

This is the case for the time being. I wonder if it would be possible/legal for the debt to be privatised and the new owner to change the terms to remove the 30-year write off? That really would lock people into debt for a lifetime, given the normal repayment rate simply cannot keep up with the interest!

 

[Dave1987]

So the FT are reporting that the economy is dominated by low skill, low paid work. Wonder what the supporters of this Government has to say about that! Distinctly remember May saying this Government would create an “economy that works for everyone”. Instead of shouting off about the low unemployment figures maybe they should be worried about all the low paid work their economy has created?

 

[tony_mac]

Of course, the big question (and the one that brings us back on topic) is what does the government see it as? Has the government actually budgeted for the loans to be paid back or not? (I personally suspect they haven't even though about it and just left it as a problem for future governments to work out).

It seems they did, but I don't know how seriously they tried to work it out, as they were miles off.
https://www.bbc.co.uk/news/education-26688018

Ministers estimated that 28% of loans would never be paid back in full when factoring their calculations.

https://www.ft.com/content/55f4a6f6-3eab-11e6-9f2c-36b487ebd80a

About 70 per cent of students who left university last year are expected never to finish repaying their loans, according to modelling carried out by the Institute for Fiscal Studies.

Now they won't even be raising as much money as they did before the big rise, but it's a problem that doesn't hit the accounts for 20 years until they have to start writing it off.

Economics consultancy London Economics said the "tipping point" at which the costs of the new system will exceed those of the old one would be reached if 48.6% of all student loans were not repaid

 

[Bromley boy]

Is that borne out in the evidence?

I must admit I’m not sure.

It just seems likely that enormous cost is going to be more of a disincentive for someone from a lower income background.

I’d prefer a system where fewer people went overall but those who did were selected on academic merit.

Education shouldn’t *only* be about securing highly paid employment.

 

[Bromley boy]

I am just speaking from my own experience, but regardless of what it "feels like", the idea of having to take out around £30k worth of loans to go to university when you grew up in a fairly poor area with probably lower than average household income was a tough idea to battle out of my head, and that is coming from someone who understood the system pretty damn well and knew it wasn't "like other loans". Now that figure is more like £50k and I can certainly see how that "idea" (no matter how inaccurate), could be an issue.

Indeed.

Of course, if you’d come from a wealthy background and could have taken out a smaller loan/none at all, it would be much less of a consideration.

That seems wrong to me.

 

[najaB]

I’d prefer a system where fewer people went overall but those who did were selected on academic merit.

In an ideal world, academic merit would be the only selection criteria - but then we would have to move away from the concept of universities as degree mills.

 

[WelshBluebird]

In an ideal world, academic merit would be the only selection criteria - but then we would have to move away from the concept of universities as degree mills.

And away from the idea that even entry level junior jobs need a degree.

 

[Bromley boy]

In an ideal world, academic merit would be the only selection criteria - but then we would have to move away from the concept of universities as degree mills.

And away from the idea that even entry level junior jobs need a degree.

It has become clear that New Labour’s misguided desire for 50% of school leavers to get a degree was utter folly. Said policy has resulted in many people going to university to study for degrees which mean little and won’t improve their prospects.

It has also caused the higher education sector to bloat beyond all recognition, with many institutions now effectively operating as businesses.

Could a solution to this problem be to pare back the number of universities and limit entrants to those with the grades to get into a decent one (ie Russell Group)? Said entrants would have their education subsidised by the government and be “free at the point of use”.

Investment could then be made in skills based training, with the aim of achieving a cultural shift away from the snobbish requirement for degrees for entry level jobs (many degrees aren’t worth the paper they’re written on today).

 

[Senex]

It has become clear that New Labour’s misguided desire for 50% of school leavers to get a degree was utter folly. Said policy has resulted in many people going to university to study for degrees which mean little and won’t improve their prospects.

It has also caused the higher education sector to bloat beyond all recognition, with many institutions now effectively operating as businesses.

Could a solution to this problem be to pare back the number of universities and limit entrants to those with the grades to get into a decent one (ie Russell Group)? Said entrants would have their education subsidised by the government and be “free at the point of use”.

Investment could then be made in skills based training, with the aim of achieving a cultural shift away from the snobbish requirement for degrees for entry level jobs (many degrees aren’t worth the paper they’re written on today).

Again something on which I find I'm in complete agreement with you. What's going wrong? At least we've still got Brexit to disagree about!

 

[yorksrob]

It seems they did, but I don't know how seriously they tried to work it out, as they were miles off.
https://www.bbc.co.uk/news/education-26688018


https://www.ft.com/content/55f4a6f6-3eab-11e6-9f2c-36b487ebd80a


Now they won't even be raising as much money as they did before the big rise, but it's a problem that doesn't hit the accounts for 20 years until they have to start writing it off.

I can remember saying the tuition fees rise was a bad idea at the time and have been proved right. It really would have been less onerous and no more expensive to have them grant funded up front.

Another blinder from Osborne and Co, along with his idea for pension reform, which (surprise surprise) has just led to a load of people having their pension funds siphoned off by fraudsters.

 

[furnessvale]

It has also caused the higher education sector to bloat beyond all recognition, with many institutions now effectively operating as businesses.

I always find myself shouting at the TV when I see ADVERTS by higher education establishments extolling the virtues of their college versus another. What is that all about?

If they cannot fill their "makey up" courses they should be closed down and the cash returned to central government.

 

[najaB]

I always find myself shouting at the TV when I see ADVERTS by higher education establishments extolling the virtues of their college versus another. What is that all about?

There's nothing wrong with competing to get the best students - as long as they are maintaining academic entry requirements. Oxford v Cambridge have been doing it for centuries. The problem comes when they have to lower standards to make up numbers.