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

Richard019

MSE_Martin wrote: »

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

As that's been mentioned though, I wonder if it should be due for reviewing again (not that I think it should be with the current state of the nations finances). I remember it going up from £10k to £15k just after I was due to start repaying my original loan. That must be 6 or 7 years it's been at this level.

Stochasticity

MSE_Martin wrote: »

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.

My understanding of your argument though is that the definition of debt as good or bad in largest part depends upon what you're borrowing the money for and the affordability of the debt.

Just that there's to be a compounding commercial rate of interest levied upon student loans doesn't make it a bad debt.

You're still borrowing for an investment in your education and in your life chances further down the line, perhaps the best reason for borrowing that there is.

And it's entirely affordable in that the cost of the borrowing is set against future taxation that may or may not ever come to pass. No one will ever have to pay a penny back that they can't afford to pay back, the rest of their financial affairs all being in order at least.

Yes, a majority of students will end up under the proposed system having to pay interest on top of the real cost of their borrowing (removing the existing subsidy that makes it better for many to take on loans they don't need for such purposes as parking it in an interest-bearing savings account or cutting back on other forms of commercial borrowing such as mortgages).

But I'd argue it's still better to pay twice, say, for an education out of the income from a well-paid job than it is to not to get an education at all.

Suggestions of penalties on early overpayment are, however, completely misguided, I agree with you on that as one trick they really ought not to be borrowing from commercial lenders who shouldn't even be allowed to impose them themselves.

But even if they do end up imposing that penalty, there will still be almost no conceivable scenario in which it will be rationally better from a risk/reward perspective for a student to take out a commercial debt in lieu of a new-fangled student loan.

Perhaps your concerns lie instead more with the financial literacy of our youth and their capacity to understand that key truth. It would seem a perfectly legitimate concern given that even the vast majority of adults seem to misconceive how student debt works.

pennypitstop_2

Fab discussion here, makes a very interesting read.

I took out student loans each year over my 4-year degree (amounting to approx £16,000 in total) from 1998/99 to 2001/02 and have had problems with the administration of the system. It's really not very efficient... my SL statements (showing I owe more now than I borrowed, after making payments for several years!) have regularly not shown payments I know I have made - they appear on my payslips, after all! Apparently, the reason is 'it takes a while for the system to catch up' (SL advisor's comments). They were unable to comment on whether the interest would be calculated on the balance on the system, or the actual balance, or recalculated later, once it had 'caught up'. This didn't seem very transparent, to me.

Then, when I was employed but also had a self-employed income, the tax office (via accountant who prepared accounts) issued me with a £900 bill, stating that I had not made payments that year, either. Fortunately, I was able to backtrack and send off documents (payslips and P60s etc) to prove it. Perhaps not everyone has a helpful accountant and hordes paperwork for use in a bureaucratic argument with HMRC.

I would personally not take another student loan - if only for the reason that I don't trust the system not to rip me off somewhere down the line. I have a rather cynical attitude that there are a lot of very clever people working on these systems who will not always play fair but like to appear to do so. While I am assured by everyone that the debt was worth it 'cos I got a degree / it's not bad debt / I'll never make a payment unless I earn enough / it'll be wiped off if I never earn enough / don't worry about it / etc etc, I'm not entirely convinced.

I am not against paying my loan back and appreciate it is not 'bad debt' as such. I have no problem with it being deducted, although have only just started my pension (age 30) as I couldn't afford both at any time over the past 8 years (not on huge wages, ranged from £19k up to £27k over 8 years - but not likely to rise significantly over this). This pension issue is a common problem which has affected many of my friends and colleagues with student debts.

Sorry, personal story rather than academic discussion, but it would be worth hearing opinions on the administrative aspects of the system and the later pension payments issue.

Penny

FATBALLZ

Another attempt at justifying a massive (effective) tax hike on graduates by saying "it's only a few quid a month". Well if we put income tax up a bit it would only be a few quid a month, but nobody seems to advocate that. I've been paying 'a few quid a month' for the last 4 years as has my partner - although the monthly figure in itself isn't loads, as a household we are now over £10k worse off than if we'd had a free education like the greedy generation who are implementing these changes to keep their taxes marginally lower.

The bottom line is these changes are being introduced because they will extract far more money from people who go to University - and the worst part is that this tax hike is aimed entirely at those who go to University because they can learn from their time there and return the investment to the taxpayer in the form of getting good jobs and paying lots of tax irrespective of the loan. Those who waste everyones money doing pointless degrees or degrees they will never use are being encouraged to continue weeing taxpayers cash up the wall because they'll still pay nothing back.

There is no rational justification of lumping £50k of debt onto 20/21 year olds and trying to make out it's not a big deal.

Stochasticity

FATBALLZ wrote: »

The bottom line is these changes are being introduced because they will extract far more money from people who go to University - and the worst part is that this tax hike is aimed entirely at those who go to University because they can learn from their time there and return the investment to the taxpayer in the form of getting good jobs and paying lots of tax irrespective of the loan. Those who waste everyones money doing pointless degrees or degrees they will never use are being encouraged to continue weeing taxpayers cash up the wall because they'll still pay nothing back.

It's certainly true that if students go on to earn higher salaries as a result of their education they naturally pay more tax to the Exchequer simply by virtue of having more taxable income, some of it taxable at the higher rate too.

But it's not really true that the new system does nothing to discourage 'pointless degrees' or 'weeing taxpayers cash up the wall' because a majority of students will end up paying more - the vast majority do get jobs paying above the repayment threshold (even many that may have done 'pointless degrees'). The consequence of these reforms, principally paying a real rate of interest upon student borrowing, for longer, will also mean that people who don't need the loans will probably stop taking them out and that it is those (read the majority) who 'only' end up in jobs a couple of grand above the repayment threshold that will end up paying the most back in real terms due to not being able to clear the borrowed capital quickly before real interest compounds on top of it. So it should lead rational youngsters to consider the true value added of their chosen degree.

kattymckrill

I bet the Government can't believe their luck that the majority of voters/media have picked up on the 9k tuition fees and not on the loans - I consider myself fairly clued up with current affairs but only got to grips with the full extent of the proposals after reading this Blog. I'm horrified, not least because the campaigners are campaigning against completely the wrong thing.

Many people were so opposed to a graduate tax when it was proposed outright, but for most students that's exactly what this is - people will be paying back this money every month for 30 years. I have a student loan from the last batch of loans and whilst I appreciate that I will only have to pay it when employed over 15k, as I work in the public sector I will not be earning much over that in salary for my whole life; I will be paying it back for most of my working life. HOWEVER, it will be possible for me to clear it at some stage because of the rate of interest. Make this a commercial rate of interest and I would have no chance. Therefore, what is the point of charging loans and loan interest that most people will never pay off?

I wonder what the 'average graduate salaries' are like for those who graduated this year - there's not a massive pile of graduate jobs just waiting to be filled with graduates like the Government would have people believe, it's a real struggle to get any job, let alone one which is degree level.

I still can't believe the Government is getting away with this without more of a media fanfare.

Kim_Beardsley

I agree with this point. Many degrees are a pointless waste of time and just an excuse to go to Uni. Some of my sons friends have 8 hours of lectures a week, the rest is private study. I for one would not like to be paying massive fees for 8 hours lectures a week. Also perhaps Uni hours should be like those of employment with perhaps 4 weeks a year holiday. Increase the hours, reduce the holidays and then you may be able to knock off some time from the overall time spent at Uni thereby reducing debt.

Crowqueen

ChickChick wrote: »

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!!

Yes, and I wonder how much of that comes from English taxpayers, just like your free prescriptions. We're currently paying for your kids to go to uni free when ours have to pay £9k per annum. We are having to watch prescription charges go up year on year to pay for the medicine you are getting for free. Before dancing smilies come out you should really understand where the money is coming from to allow your Assembly (and the Scottish and Northern Irish governments) to do that. Without us, you would be in the same situation as Ireland or one of the smaller European countries which don't have the tax base to subsidise health care or educational advantage. While we are forced to pay a premium for education and medicine, you get it free. That isn't fair on poorer English people.

@Kim - my degree at the LSE was 8h per week taught, but it was full-time and more after you added on what study you needed to do just to keep on top of the coursework. I would have loved a bit of time off but as it was I barely kept to the deadlines and had the opportunity for other activities that look good on your CV as well as academic work, and I enjoyed being at work after I graduated because I could go home at the end of the day and switch off for a while, and do something other than worry about my latest essay or reading for tomorrow's seminar. I don't buy the students-as-consumers issue. It doesn't do justice to the value of education and what the universities actually provide and what the better students do with their time to get a decent degree like mine (2:1 Hons). Don't knock it till you've tried it. I accept the need for fees but don't feel I got a raw deal (and the LSE has improved since I left it) at all. It was well worth what was paid for it.

However, access to education is being denied not necessarily through hard facts but through perception. I think Martin's blogs suggest he is fighting to alter perceptions, but I think he is losing the fight and needs to acknowledge that people have fears and that they are partly justified. What this country doesn't need is the denigration of education and aspirations. We have a lack of motivation in education which needs to be addressed, and part of that is to make it clear that there is a value in professional and academic qualifications.

To be honest, the students keeping the pressure up with the protests isn't going to let the government off the hook. The last time we had political unrest like this the PM was booted after six months (poll tax riots, 1990). I hope the same thing happens to this unelected shambles.

Therecanbeonlyone

They've recently changed the rules on Student Loans and credit ratings...
From whaht I remember whilst it doesn't count as a normal loan on credit searches, they will now refer missed repayments etc to the ratings agencies, its listed on the Student Loans Company website,,sorry can't post links

So not as far away from normal loans as you think!!
sound like certain sofa companies...nothing to pay for 4 years, honest!! :eek:
tcboo

Stochasticity

Therecanbeonlyone wrote: »

They've recently changed the rules on Student Loans and credit ratings...
From what I remember whilst it doesn't count as a normal loan on credit searches, they will now refer missed repayments etc to the ratings agencies, its listed on the Student Loans Company website,,sorry can't post links

So not as far away from normal loans as you think!!

Only applies to people who took out loans pre-1998, loans on which you're personally responsible for making repayments directly to the Student Loans Company.

All loans taken out post-1998 (and those proposed under the upcoming reforms) are repaid by your employer via PAYE, so there's no such thing as a missed repayment as such.