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

Clowance

Banks will most definitely take in to account ability to pay (lower nett income due to paying off student loans) - they are businesses not altruistic charities!

WHY does everyone assume that what the government says now is how it will stay forever - the £3000 tuition fees are already changing as are the conditions for loans. If we let this through in 5 years the rules will change again, undoubtedly for the worse. How else will the politicians finance their expense accounts? Do you believe a word any politician from any party says? After all, the lib dems said they weren't going to do this and have backtracked. And there are countless examples of a party being elected on one promise and then breaking it once in. Once tuition fees were introduced it was the foot in the door. This proposal makes it worse - and the next time it changes it will be worse still.

dlevene

I think you make some good points Martin, though I would disagree with the following:

1. "So actually, in terms of disposable income, people will be better off"

The £15k/£21k refers to earnings in 2015/6, when due to inflation earnings will be worth less. A such even though people will have more money in their pocket, you have to factor in that that money will be worth less.

2. "in the short term we need to ensure that whatever the political decision, however palatable or unpalatable people find it, we don’t stop our youth from getting an education out of a misplaced fear."

Not only are those political steps not being taken, but it's not *that* misplaced is it? The fact is if you're from a poorer background in this country you're still likely to earn much less than if you're from a rich background, and if the debt becomes "bad debt" as you say, it's not an entirely illogical decision. Which leads me on to my final point -

3. "The easy solution would be financial education in schools which would help this enormously"

I'm not sure it is that easy, or even a solution. Those from poorer backgrounds are culturally more debt averse, for historical (and often very good) reasons. Combine that with the fact that there will always be an information gap - my, very poor, comprehensive school didn't even have a careers service, and there's still a digital divide - the fact that the debt would become "bad debt" and the fact the Govt are cutting education funding making the information gap even worse, and you have a recipe for very unequal access to HE. Which I - and I'm sure you - think is a bad thing.


Links of interest (the second in particular, fantastic report):
http://www.guardian.co.uk/education/2010/nov/30/tuition-fees-study-government-progressive
http://www.suttontrust.com/research/knowing-where-to-study/

Stochasticity

Clowance wrote: »

WHY does everyone assume that what the government says now is how it will stay forever - the £3000 tuition fees are already changing as are the conditions for loans. If we let this through in 5 years the rules will change again, undoubtedly for the worse.

There have been lots of changes to student financing, and there doubtless will be more reforms in the future, but the government has no track record in the field of student finance of applying reformed conditions to loans that have already been taken out. There are people today still paying off student loans that were taken out before 1998 and repaying under the same terms as applied at the time they took them out, completely different terms to those applied to those taking out loans post-1998.

How else will the politicians finance their expense accounts? Do you believe a word any politician from any party says? After all, the lib dems said they weren't going to do this and have backtracked. And there are countless examples of a party being elected on one promise and then breaking it once in. Once tuition fees were introduced it was the foot in the door. This proposal makes it worse - and the next time it changes it will be worse still.

Not entirely sure how this generalised criticism contributes to the discussion. A lot of the things allowed under the previous system of MP expenses were morally inexcusable. But MP expenses at their peak ran to £96m, a minuscule amount in the context of the wider economy. Given a population of 60+ million, expenses at their peak cost no more than about £1.60 per head, or about £3.20 per taxpayer. Needless to say, increased scrutiny has dramatically reduced the level of expenses, and there's absolutely no relation between the reform of student financing and MP expenses.

Stochasticity

dlevene wrote: »

I think you make some good points Martin, though I would disagree with the following:

1. "So actually, in terms of disposable income, people will be better off"

The £15k/£21k refers to earnings in 2015/6, when due to inflation earnings will be worth less. A such even though people will have more money in their pocket, you have to factor in that that money will be worth less.

Even after factoring in inflation, £21k in 2015/2016 will still be substantially more than £15k in today's money (unless you believe inflation will run at greater than 7% on an annualised basis for the entirety of the next 5 years). But you're right to point out that the increase is a bit smaller than it seems, from £15k to about £18k in today's money (on the basis of current levels of inflation of about 3%).

2. "in the short term we need to ensure that whatever the political decision, however palatable or unpalatable people find it, we don’t stop our youth from getting an education out of a misplaced fear."

Not only are those political steps not being taken, but it's not *that* misplaced is it? The fact is if you're from a poorer background in this country you're still likely to earn much less than if you're from a rich background, and if the debt becomes "bad debt" as you say, it's not an entirely illogical decision. Which leads me on to my final point -

3. "The easy solution would be financial education in schools which would help this enormously"

I'm not sure it is that easy, or even a solution. Those from poorer backgrounds are culturally more debt averse, for historical (and often very good) reasons. Combine that with the fact that there will always be an information gap - my, very poor, comprehensive school didn't even have a careers service, and there's still a digital divide - the fact that the debt would become "bad debt" and the fact the Govt are cutting education funding making the information gap even worse, and you have a recipe for very unequal access to HE. Which I - and I'm sure you - think is a bad thing.

I think Martin is completely wrong to be calling it a 'bad debt' and he hasn't made clear in his blog posts exactly why he's calling it that, especially in the broader context that most people don't seem to understand either the current system of repayment or the proposed amendments to it. As Martin elsewhere has repeatedly tried to point out, it's not a real debt like a credit card, a loan or a mortgage. Instead it's an agreement that the government will lend you the money to invest in an education and if the investment yields fruit and you earn a good salary as a result, you'll be taxed a bit more heavily.

WelshGandalf

The whole idea of "those who are better off pay more" is somewhat false.

There are thousands and thousands of people who got cheaper/free degrees who are earning lots. They benefited from this, why should the current generation effectively subsidise the education?

I would leave the current loan/fees as they are, then raise the upper rate of income tax by 1p. That way, all well-off people contribute, both current students who end up earning a lot and others who earn a lot of money, be it from a student education or not. I'm sure they can all afford it.

(I am a former student with circa £10k loan I'm paying off from my studies, I have no real problem with this).

Money_Saving_Dude

WelshGandalf wrote: »

The whole idea of "those who are better off pay more" is somewhat false.

Agreed. Ever since the 80s we have moved from the state providing services to certain sectors of the economy to if you use a service you pay for it. And guess what, those who are much better off tend not to use the services as much and so less of their income goes to the government.

But by reducing general taxation they have seduced the middle income groups who aspire to be in the higher income brackets that this is the correct way to go. So now it is politically very difficult to do the right thing which is to increase direct taxation (or otherwise increase taxation on the better off) and redistribute that wealth around the whole country.

There was a golden window in the 50s, 60s and 70s when this did happen, as many people still had fresh memories of the war, but since then it has been the 'I'll allright Jack' approach. If you can keep my tax down, and I don't care about what happens in 30 years, I'll vote for you.

Well now we are 30 years on, and guess what, those thousands of people they abandoned in the 80s now have kids and that second generation is becoming a problem.

More people are going to university, which is good. But *IT MUST BE PAID BY EVERYONE* because everyone benefits. You get a doctor out of the system it is not just that they get a good salary, I get better health care.

But until the people wake up and realise they are screwing themselves, and are prepared to vote for someone who will redistribute the wealth, we will continue to go down and down.

That could be one or two generations away. But, British people, it's *YOUR FAULT*.

MSE_Martin

Bpbill wrote: »

I think theres a flaw in your table. Isn't the headline repayment figure of £21,000 based on a students income in four years time?

If thats the case then shouldn't you either project the current £15,000 figure forward to an estimated repayment threshold in four years time or bring the £21,000 income back to an estimated income in todays terms?

No - these are absolute figures. The current rate is £15,000 and its not inflation linked (its been static a long time) if the new system isn't introduced it would still be £15k in four years time - so the comparison is fair

MSE_Martin

kaz0705 wrote: »

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!

Hiya,

Actually that's not true student loans now are wiped after a certain time - way before most are 80 - exactly how depends on when you took it out.

Please see http://www.moneysavingexpert.com/loans/student-loans-repay#when

MSE_Martin

Stochasticity wrote: »

I think Martin is completely wrong to be calling it a 'bad debt' and he hasn't made clear in his blog posts exactly why he's calling it that, especially in the broader context that most people don't seem to understand either the current system of repayment or the proposed amendments to it. As Martin elsewhere has repeatedly tried to point out, it's not a real debt like a credit card, a loan or a mortgage. Instead it's an agreement that the government will lend you the money to invest in an education and if the investment yields fruit and you earn a good salary as a result, you'll be taxed a bit more heavily.

The point about bad debt is in the contect of my current guides to students.

At the moment I explain that debt isn't bad, bad debt is bad and we need to learn when to borrow, how to borrow, and how much to borrow..

With in this I talk about good debt and bad debt.~

Currently the student loan is a 'good debt' as its set at the rate of inflation so no real cost. Commercial loans are 'bad debt' as there's real cost and compounding. My point (made in short cut) was that under the new system student loans will be closer to bad debts. Though I agree they are still very different due to the repaymetn system.

We have already educated a generation into debt, without educating them about debt. To now sell them into debt at commercial rates of interest worries me greatly. I agree it isn't the same, but there are scenarios if you can't pay the loan of early - when some would be better getting commercial borrowing than student loans and that isn't a good state of affairs as far as Im concerned.

Richard019

Money_Saving_Dude wrote: »

The answer to the student fees problem is simple. Go to college, get a degree then do a runner and leave the country. While UK degrees still have a reputation you will be able to work elsewhere, either in Europe or the rest of the world. If you are starting your employment in your early 20s you will have similar (maybe better) life chances as you would in the UK.

Then, 30 years later, come back to the UK to retire. Simples!

At least that's the advice I've given to my kids. What is it with this country that it seems to think you have to pay for everything? Why is everything so short sighted? The UK in 2030 or 2040 is looking like it will be a horrible place.

Except there's a requirement if you do that to pay the loan back from your foreign earnings. I don't know how they police that, but it's not really a way I'd advise people to avoid paying it back.