'The argument over student loans could kill the next generation's...' blog discussion

A question about : 'The argument over student loans could kill the next generation's...' blog discussion

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's The argument over student loans could kill the next generation's education Blog.

Please click 'post reply' to discuss below.

Best answers:

• I know a few of the key students from UCL involved in the protests, including the one outside Top Shop on Oxford St this week. I think, overall, the protests are about more than just tuition fees but I think this blog has been incredibly helpful for explaining issues to Joe Bloggs.
  The 'bad' debt that the government is so keen to get future generations into is terrifying, especially, I'd imagine for many DFWs like me who know only too well the implications of bad debt.
  On Facebook the other day, unrelated to the student fees debate, a friend posted that she's just worked out that it'll take her 200 years to pay off her student debt. Another friend commented that it she finished uni 10years ago and is still paying off hers.
  The point for me is not necessarily the fees- I understand *some* need to be levied and I never had a problem with taking my loan. IT's the fact that those on the lowest wage that can start repaying will be doing so forever. Those, like some of my friends, who go to work in the city or as solicitors, will be able to pay it back fairly quick, incurring minimal interest.
  Those, like my boyfriend, who has yet to reach a threshold to start paying his back are simply incurring more and more interest as each pay day passes.
  It's terrifying how much social workers, for example, who need a degree but are poorly paid, will end up owing yet they are a vital part of our society.
  I work with vulnerable children and regardless of reassurances of the help they will receive, when you don't necessarily have a home to return to during the holidays (fostering provisions stop at 18), the additional barrier of unending bad debt would simply be the final nail in the coffin. I know young people who have taken GCSEs early and achieved As and A* and other that have 10 A*. Just because they are vulnerable children does not mean they do not deserve a chance to have a degree. Yet these fees, combined with the current hurdles they face, would- in my opinion- reduce the already low figure of looked after children who attend uni (9%) to the figure it has been for decades before the Labour government (1%).
  Oops- bit off track there.
  In summary- great blog!
• I have a son in his 2nd year of Uni. He is doing a 4 year degree. He is based in London and the hours of the degree is virtually full time with no free time really to allow him to take a part time job. As parents we both work full time, our income is such that his grant amounted to Ј75 for the year. His loan is therefore nearly 10k, 3k+ for fees and 7k to cover accomodation in a shared house with 5 others. We pay his weekly transport costs of Ј20 as well as his food. When he leaves Uni he will owe nearly 40k on his student loan. There is no way we can afford to give him more money to reduce this debt. I am unsure how the grant system works but I feel that it seems unfair that my son will come away from Uni owing such a huge sum because we work whereas if we did not work he would receive a grant and have little or no debt. Surely all students should be treated the same, at the end of the day it will be them a degree benefits with the increased opportunities and chance to earn more money. As you say they do not start to repay their debt until they earn over 21k. Perhaps the abolition of grants could fund the lower fees for all. Imagine our sons debt if fees were higher! Our sons view on the cost is you have to speculate to accumulate. He is going to Uni with a view to earning more money later on and why should that tax payer or his parents fund this. Don't get me started on Wales and Scotland and Uni fees. Are we a United Kingdom or not? I feel that English students are being discrimiated against. Anyway thats another argument.
• Hi,
  Absolutely great blog, totally agree with your points.
  What's scary is definitely the interest rates as you say. I don't really have any smart ideas for how to tackle this other than keep the message narrow - all I hear on the news at the moment is about the level of fees being charged, and this is really a separate issue, and means the interest implications are lost.
  At a time like this when so many people have bad debts and the economy is the way it is, the last thing we should be doing is lumping people with potentially toxic debts when they're just trying to improve themselves.
  Unfortunately this is something of a political battlefield - it doesn't seem possible to separate out the arguments about whether there should be tuition fees or how many people are entitled to go to university with the more important thread of what are the debt / interest implications on people taking out loans under the new / proposed system. Maybe this is where you come in Martin......but surely if you fight against them removing the cap on interest, wouldn't the first query be what's your alternative?
  What would the cost be of introducing fees but keeping the cap on rates when it comes to loan repayments? Does anyone know?
  IW x
• A simple thing you could do would be to raise this in your weekly email.
  Since it goes to 5 million people, that in its own right would have a big impact on educating people appropriately.
• Thank you Martin, for posting an assessment of the situation, free of the histrionics that come from both sides of the debate.
  Many of my American friends have (or had) student loans to fund their higher education, and although no-one actually wants debt, they took it, as an investment in higher incomes later.
  I think, too, that forcing students to think long and hard about what they are signing up for may reduce the number of seemingly pointless degrees that do not lead to work.
  As for how to move the debate forward, I think the previous suggestion is a great place to start. Publish your blog in the weekly email please. Let us get this discussion going, properly, without all the screaming, shouting, name calling, graffiti and fire extinguishers.
• I am VERY worried about: not being able to repay early, interest potentially going up and up so taking longer and longer to repay, people getting comfortable with the idea that it's okay to go through life owing tens of thousands of pounds (regardless of what job/career you want) without being able to sell off a tangible asset and relinquish the debt.
  How will people ever feel truly FREE to make their own choices throughout the rest of their life if they have a massive debt like that over them? I mean, at least with a mortgage you can sell the house, pay off your debt, pack your worldly goods in a suitcase and set off for new horizons. It will hang over you like a black cloud.
  And what about relationships where both have massive debts before they even start trying to get a home together. How will that work out when people marry, someone goes part time to look after kids or whatever and then they divorce???
  This is a mess. I went to uni (when it was free), my husband didn't. He earns more than me. I have serious doubts whether I will want my kids to go.
  For working class people like me the concept of debt is not something we can just shrug off lightly. Unlike for the Osborn's, Camerons and Cleggs of this world Ј40k is not pocket change. (And let's face it, it probably feels quite cheap for those who've spent the last 10 years paying private school fees).
  Interest must NOT continue to grow at inflation rates. Or if they persist in this people MUST be able to repay early. Anything else is scandalous.
• Looking at the way that these loans are repaid it looks to me that a large number of students that borrow responsibly may never be able to repay their debt. Now if they realise that, they may consider that it is not worth borrowing responsibly and instead borrow to the max because they are never going to pay it off anyway.
• Thanks for explaining this Martin.
  I consider myself to be financially literate, and politically aware, but I had no idea that (for example) the loans have no impact on mortgages, or how the repayments kicked in. I've two kids still 10 years away from uni, so no doubt it will change several times between now and then, but even now I worry how they'll be able to afford it.
  I agree with you that moving the interest rates to a commercial level away form inflation will cause huge problems, there will be many many graduates who end up on "normal" jobs (as opposed to high flying professions or city jobs) who will effectively be paying 40% marginal rate of tax form Ј21000. Someone earning Ј50000 is going to have a marginal rate of tax of 50% for near to 20 years under this system. That can't be right.
  I'm really hoping that the increase in fees will move universities to start competing on the type of course they offer. I think with fees at 6k+ a year, the days of doing a 3yr, full time degree are going to be numbered. Hopefully it will be much more common to do part time degrees over 5 years, while working 3-4 days a week also rather than people just not doing a degree.
  However, I also think there's something wrong with the entire system that requires 50% of it's young people to enter the workforce with Ј40k worth of debt, even it it's "special" debt that doesn't count sometimes.
• I think Martin needs to communicate a clearer and simpler message on the proposed student loans if he wants the masses to understand it.
  The proposed system can be broadly summarised in the following sentence: you pay a real rate of interest on your student debt and make repayments of 9% of the portion of your income over Ј21k, until the debt is cleared or 30 years have passed, with no facility for overpayment.
  What this will mean is...
  - Students who end up on low incomes won't pay much back, if anything, because of the Ј21k repayment threshold and because their debts will be written off after 30 years (despite possibly running into six figures by then).
  - Students who quickly become higher rate taxpayers and top earners will pay a bit more than the true cost of their borrowing due to a real rate of interest being levied for a couple of years without a facility for overpayment, but their debts will be paid off relatively quickly (within 10 years).
  - Yet for everyone else, the majority, those with starting salaries of Ј20-Ј30k and 5% annual pay rises, the policy is a 30 year graduate tax (at a very punitive rate) on all earnings above Ј21k and they are likely, due to the real rate of interest and no facility for overpayment, to repay the true cost of their borrowing many times over.
  All in all, the proposed policy will mean that it is the so-called 'squeezed middle' that will end up subsidising the debt write-offs elsewhere. The more prosperous graduates will, on the other hand, get away relatively lightly.
• If certain students say they are not willing to take on a preferential loan for their education then we will have to import more graduates and skilled people from other countries.
  After all,if we can import Polish plumbers/brick layers/builders and vegetable pickers, we can also import Polish graduates and those who would do the jobs which require a degree level of education.
• There is another aspect to look at...the time at which the loan is paid off. I did my undergrad in 2000-2003, and left with a loan that is now about Ј8500. I am stil studying for PhD so haven't started paying it back yet. However, there is a case that the government won't get back all of their money loaned anyway.
  On MSE's own article on the decision to repay student loan, there is section about how long it takes to repay. Now I put in make believe details of earning Ј26000, interest rate at 4.4% with a debt of Ј40K. It says that after 25 years, my debt would be wiped out, so effectively I wouldn't repay all the loan. Now perhaps I have misunderstood, and please correct me so that I can learn, but then not being able to repay early the debts is a good thing? Especially if there is no impact of student loans on mortgages?
  I'd love to know your thoughts. I have a four year old who I am preparing for, in terms of her going to uni. I have an excel spreadsheet with target from Jan 2011 to Sept. 2024 so I can see how much I have to save each month during that period for her to not have to take loan, but the more I look at it, perhaps it's worth her taking the loan anyway!
  In terms of tuition fees, I think the current rate is fine. However my biggest objection to the fees increase is that in my 10 years as a student, I do not feel that I have received quality of service and in all honesty, I cannot see where my money goes. I've been at one of the Russell Group unis all my academic career so I expect more I think. Furthermore people should be aware that universities DO NOT view students as consumers...this I feel will have to change once Ј9K/yr fees kick in.
• As a parent and teacher these fees terrify me! Neither of my very bright children went to Uni because, in the main, they couldn't face a life of debt. This is probably our fault because we have drummed it into them that debt is bad and should be avoided!
  As a 6th Form Tutor I am seeing more and more anxiety from my students about how they are going to finance their education. Several of my students this year have decided that they are not going to apply for University. These students are not from poor backgrounds but cannot face living with this hanging over their heads. It is such a shame!
  There has to be a better way! The answer is probably to save for it from birth but frankly we never had the leeway to do this until our children had reached their teens and by then it's too late!
  When I went to Teacher Training College I had my fees and board paid for me and had to live on the Ј10 pw my parents could afford to give me. At the end of my first year I had an overdraft of Ј15 and my dad went ballistic. It never happened again!!
• Thankfully this is not a problem for the youth of Wales - thanks to our wonderful Assembly the next generation of students do not have to worry about going into more debt than they already have to in order to obtain a degree! More power to the Welsh Assembly!!
• I'm glad I'm not the only one that's picked up on the idea that many won't repay the debts in full anyway, so the interest rate is largely irrelevent, it just means more will be wiped off their slate after 25 years (I was thinking it was when they turn 65, but that's maybe the old scheme).
  Living in Scotland I'm not familiar with the actual levels you can get now in England so i might be wrong in my thinking. Up here we get about Ј6,000 loan with our fees paid so I assume in England you can get the same, plus an extra amount equal to the values of fees that has to be paid by the student/parents circa Ј3k maximum?
  That's Ј9k a year under the current scheme so Ј27k after 3 years or Ј36k after a 4 year Masters and the target interest rate (inflation) would be 2% and it gets wiped at 65 but you would hope to retire before you were 60 so 25 years working life.
  Under the new scheme of 9k tuition fees you'd be up to Ј45k after 3 years or Ј60k after a 4 year Masters. The debt apparently gets wiped after 25 years.
  It's quite difficult to be accurate because you really have to work with constant salary levels, threshold levels, and interest rates to keep things simple but (I'm using the mortgage calculator):
  Old scheme - 25 years Ј36k at 2% is Ј1,836 a year which requires about Ј35k pa earnings. If you earn less than that you won't repay it so your contributions would effectively be a straight 9% of your income over Ј15k pa.
  New fee levels on old scheme - 25 years, 60k at 2% is Ј3,048 a year which is about Ј48k pa earnings. Again, if you earn less than that you're not going to pay it off so it's a straight 9% on income over Ј15k.
  New scheme - 25 years 60k at 2% is still Ј3048 a year but now you need to earn Ј54k pa to pay that much. If you're not earning that it's still a straight 9% of your income, but this time it's over Ј21k pa.
  If the 'commercial' interest rate is higher and you're earning Ј54k (or less) all the extra interest is written off (along with the other remaining balance) at the end of 25 years so everyone earning 15-58k pa is in reality going to be Ј540 a year better off (9% of the 6k increase in the threshold), with a debt that has had effect on their potential borrowing in future and that they now don't have to repay.
  The only people that will pay more due to the increased interest rates will be people earning over the 54k average where the additional contributions will go towards/pay off the interest over 2%. I'm not going to work out the exact details as that varies tremendously depending on when they earn the extra and what the interest rate is at each stage.
  ---------------------------------------------
  I've always been brought up to pay for what I want or not have it, or where loans are essential (eg mortgages) to always repay in full. If you borrow something and agree to give it back you should always do that. But on this I'm also a realist so I'm quite torn on the issue. It's a seperate debate but I was also brought up with, although I didn't get to experiance it myself, free university education and viewed it as the government's investment in the future of the country, which would be rewarded with increased taxes from people earning more money. (I'm opposed to tiered tax as well but that's yet another different debate).
  Anyway, the 'free university education' side of me is appalled that the government is planning to have the 'commercial' interest rates applied to the loan. They should already be making their 'profit' by educating people so that they can earn the increased wages they'll pay more tax on. The investment they're making by lending us the money should be limited to that, with the repayment being an equivalent amount to what was borrowed. I can just about stomach that on the grounds that it essentially makes it a deferred investment by the individual. They want to have a degree so they can earn more and have a better life, so fair enough they should pay towards that as well.
  The realist part of me though just thinks it's a huge fuss over nothing, with the press and NUS doing nothing to help people get information about the real situation. It's going to have next to no negative effect on anybody and most people will actually be better off (as the repayment figures above showed). The newly increased debt in most cases won't get paid off even under the current system, so what does it matter if the interest rate increases?
  I actually had this discussion with a couple on a train a few weeks ago. Their kids are due to start uni in a couple of years time, and they were really worried about the debt their kids were going to be saddled with, one of the kids had even said to them they were considering not going to uni because of it.
  I spent 20-30 minutes going through it with them addressing their different concerns even about the current system. It is just so poorly reported to the public at large, thanks mainly to the media banging on about these 10s of thousands of pounds student debts they've all been saddled with as a result of the shameful tutition fees.
  I've taken to telling people to just ignore the figure and just look at the deductions system as a whole. 11/12% tax after Ј5k (whatever the NI rate/threshold is), 31% after Ј7.5k (from next year) and then 40% after Ј15k etc for the other brackets. You'll never miss the money they're taking for the loan because you've never had that much before so you're still better off. Somewhere down the line you'll get surprised by a sudden "tax cut", and if you don't then don't then there's no need to worry about the balance because it gets written off.
  I hate telling people that they don't need to even think about repaying it because I think everyone should repay it. But the reality is there's no consequences if they don't pay it off in full, so why should they worry.
  The most scary thing about student loans and educating people into being in debt for me is that the best way of looking at them is "Here's tens of thousands of pounds, just forget we've given you it. Don't worry about giving it back, if you haven't done it after a while we'll just let you off". Not really conducive to sound financial planning in future. For mature students it's even worse, there you can enter into it knowing full well you'll never pay it back because you'll only have 10-15 years working at the end instead of 25-30.
  EDIT - By God I've gone off on one here. Well done everyone who managed to last through that little rant.
  EDIT 2 - I've actually just gone back to studying full time, so the big fuss over nothing comment isn't just an "I'm alright Jack" comment.
• I think theres a flaw in your table. Isn't the headline repayment figure of Ј21,000 based on a students income in four years time?
  If thats the case then shouldn't you either project the current Ј15,000 figure forward to an estimated repayment threshold in four years time or bring the Ј21,000 income back to an estimated income in todays terms?
• A few people have mentioned debts being wiped after 25/30yrs; is this the new proposal for new fees? Because I certainly know that the current student loan remains payable until you're 80. That's a long long time!
  I understand people saying 'if you don't earn enough then you don't repay' but what if you spend 10years not earning enough and then, bam! come 31, you start earning 21k and the loan kicks in.... and then it's another million years (so it feels) before you can ever hope to pay it off. It is a constant black cloud hanging over you. Except the cloud is 9k or so, like mine but 50k or whatever with ever increasing interest.
  I live in London because I *have* to for my job- it's specifically London based. Once you add in a third sector wage (read: pretty low for the most expensive city in UK), rent, bills, overdraft from uni and (unfortunately- and separately from this discussion) other debt, the student loan repayment threshold isn't exactly doing me any favours.
  Yes, a loan should happen but what's wrong with the current system of interest?