'Student Finance 2012 changes – it's time to tackle the ignorance' blog discussion

2sides2everystory

2012_Student_Finance_Scheme_Spokesperson wrote:

Frankly this discussion should be far more popular and I fear the reason it isn't is because a certain individual is telling us their entire life history and people are not engaging for fear of receiving a rant in response (queue rant I'm sure....)

It's a view, but it is an exaggeration. We have scarcely touched upon my entire life history, but clearly you do not like the internet forum political capital that might come with it if it is not just seen as a rant as you put it. I think people are a little more clever than you think. They know that anyone resorting to words like 'troll' or 'rant' is claiming high ground to which they may not be entitled.

Who exactly are you trying to reach in this discussion? Me? My kids? All of us? I've already said I have a son who should enter university in 2012. But will he? Will he decide at the tender age of 18 to take on a financial commitment akin to a 200% start-up mortgage with some unknown government sponsored private sector loan organisation, or will he look abroad for a decent (almost) free university education or will he seek a government sponsorship from the RAF, or should I take the lead and say, whatever you decide is ok with me son, but whatever it costs, I shall pay for it (a bit like an extravagant wedding?) because I am not sure that advising you to yoke yourself to this thing we do not understand is a good idea?

I mean seriously, are you actually telling me I step aside and tell my son something like 'I am not the best person to advise you son on this one, I had a free university education and an up and down career which has as you know been of a great help to get you to this point, but because in the grand scheme of things it hasn't amounted to a hill of beans, and my views don't accord with those of England's universities and government, people are telling me to butt out and just make sure you have seen the internet links that show you how you won't have to pay a penny up front?'

Lokolo

2S2ES. Can I ask you something? Why does it matter to you about the loans? Is it not ultimately your son's decision?

I just think anything coming from a parent is going to be biased. In my experience my parents and grandparents were against the loans, I still took them and I have profited loads from them .

I also don't understand why you have suddenly compared student loans to a 200% start up mortgage. It's like comparing apples to oranges (nicked that one from dunston!), with a mortgage you are going to have to pay it back, a student loan you may never pay back a penny. There's no possible way to know whether to student loan deal is good or not as you will not know how much you will earn (and therefore, pay back).

2sides2everystory

Hi Lokolo

Yes I suppose it is partly a cultural providence thing, but believe it or not, I am quite far from my parents ideas of providence.

And yes to the same extent it was my decision to take advantage of a free education and a full local authority grant at age 18, this decision could be the 2012 equivalent for my son. One hell of a decision though. It is a decision to take on a loan as big as a house when he knows full well that people 10 years older than himself have failed to get on the housing ladder to which most of us in the UK aspire.

And yes I was struggling to find a colourful sentence or analogy to describe my feelings of resistance against such an open ended loan arrangement. A 200% mortgage is as outrageous as my thinking went at the moment of typing my last post. I was then actually thinking of another young member of my extended family who is a bankrupt courtesy of an estate agent, a mortgage broker and a Northern Rock 120% mortgage plus of course his own optimism and an adverse economic climate no-one had the foresight to consider.

I am right aren't I that apart from the ultimate amnesty at age 50 the outstanding loan on paper at age 49 could have grown outside all our ideas of horrendous given the wrong economic climates between now and then?

And I hate to tell my son "You may never have to pay back a penny" because he is bright and full of promise and I do not want him to be exposed to thoughts of mediocrity just yet ... for that is what £21,000 a year means ... it is a typical salary for a graduate in a bank as just another 9-5 recruit in a high street in tempted to sell his or her soul to cheaply to the devil.

My son can create and deal with his own mediocrity later if he has to, but for now I want to protect him from it for as long as he maintains his own level-headed optimism.

Postive thinking or optimism surely isn't good if it goes as far as "it ain't never gonna happen"?

I am concerned about the lack of exposure of the downsides of this scheme. The fact it is a very large real debt, the private sector nature of it which we can guess means that whole baskets of it will be packaged up and traded within a few short years and could end up managed by goodness knows who, especially those parts of the portfolio that have at some stage defaulted. How will defaults affect future creditworthiness? The interest rate at RPI plus something up to 3% extra is frightening and already verging on the dangerous due to the effects of compounding over long periods.

The reason I say this is because we all know RPI is already increasing at 5.2% (Apr 2010 to Apr 2011).

If my son just borrowed £27,000 but then never exceeded £21,000 a year, then just before he became 50 he would owe over £121,500 assuming an RPI increase of a level 5.2% throughout.

If for just one year in the 31 or 32 years he is potentially saddled with a debt with the Student Loans Company Ltd, say for the duration of 2015, the RPI year on year increase departed from 5.2% and was actually 10%, he would reach a debt level of £121,500 a whole year earlier. If the RPI reaches 10% and stays there until the end of 2015 then he would owe £121,500 by the time he reached age 48 (assuming his salary had not exceeded £21,000).

However, if the RPI follows the same pattern in the first 20 years as it did when I went to university, then the outstanding debt just before it is written off might be over £150,000 (from an initially borrowed £27,000).

What does it really mean? Is it nothing to worry about?

I guess the thing I hate most about it is that it is all real money paid to good universities and bad at more or less the same level from the outset. So it is real debt, but who does it really belong to?

flimsier

MSE_Martin wrote: »

I find the last comment a little confusing Im afraid.

Im not supporting the student finance scheme, Im supporting communicating it so people understand it and can make a decision based on whether the actual cost to them is worth it.

You're effectively selling it to them. You're saying "you can afford £27k of debt" - and you know what, maybe they can, given the way repayments work, but it's still £27k of debt that will not go towards a house in their future, and it will still hang around their neck for ages, and it's still debt - just because it's being sold better. You're communicating a message that debt is something young people should barely worry about.

They're using you, and you're falling for it.

I got a free education. So did you. And so should other people. Why not campaign for the right of the poorer to have what we enjoyed, rather than teaming up with those who want to pull the rug from under working people, and ensure working people pay for the bankers mistakes?

No 18 year old should be contemplating such big debts. None. And certainly not in order to be able to study at university.

Lokolo

2sides2everystory wrote: »

And I hate to tell my son "You may never have to pay back a penny" because he is bright and full of promise and I do not want him to be exposed to thoughts of mediocrity just yet ... for that is what £21,000 a year means ... it is a typical salary for a graduate in a bank as just another 9-5 recruit in a high street in tempted to sell his or her soul to cheaply to the devil.

Just because you have high hopes and is bright, doesn't mean it'll happen. Goodness knows I have friends who are smarter than me, but they are on half the salary as me.

And not all worthwhile jobs come with high pay packets, research for one, teaching is another. Both would require a degree, both come with high job satisfaction, neither are particularly well paid.

By all means, I have the same mentality as you (from what I've seen in the post it seems), I love money, it's my motivator, but it's not same for everyone.

2sides2everystory wrote: »

If my son just borrowed £27,000 but then never exceeded £21,000 a year, then just before he became 50 he would owe over £121,500 assuming an RPI increase of a level 5.2% throughout.

I'm not quite sure about why you chose 50, because currently the loans are wiped after 25 years, it's only 35 years for Scottish students (I suppose I am assuming you're not!), so infact in your example, your DS would have £121k in debt but that would be wiped out.

You are also assuming 5.2% throughout, yes, it is currently 5.2% but inflation isn't going to be 5.2% for the next 25+ years, and assuming this is a pretty bad generalisation (I have said the same in the Student Loan 2012 thread in the actual student forum).

Look here at RPI for the past 60 years:

http://www.statistics.gov.uk/downloads/theme_economy/rp04.pdf

The late 70s and early 80s were bad yes, but then by that time base rate was also sky high. But since 1980, so 30 years, inflation has only been above 5% 7 years, and above 4% 14 years.

And yes I am not particularly happy with all of the changes made; early repayment penalty, RPI+3% whilst studying etc, I still don't think it's such a bad deal as people are making out.

gizzie121

There are a few points about the student loans that I think I understand but still worry me. So I'd be pleased if somebody could reassure me.

Firstly, it's said that you don't start paying until you earn more than the average wage. Ok. Fair point, except that the average wage doesn't stretch to much these days. £21k is not a high wage. Its a wage, whereby if you have children, you get significant help from the government to help raise them. Also, when I left university 20 years ago, my first job as a secretary was earning just a little less than that. (£19k) I see that today, secretaries/PA's, earn far far less. So we have a situation where there is significant wage stagnation if I'm being kind, and wage deflation if I'm being honest. But if the student debt accrues interest at a rate of inflation + between 1% and 4%, then how can anybody hope to pay it off? Doesn't it just then become a glorified student tax?

Secondly, what happens to women who have children and stay at home to look after them? Their loan continues to accrue interest at inflation + between 1 and 4 %, so by the time they're ready to re-enter the workplace, their debt will be much higher than their male colleague. So isn't there an element of sexual discrimination going on there? Surely, we want educated mums bringing up the next generation of children. So saying, well, if you're going to have children, don't go to university, isn't the answer.

Thirdly, if I move my family to Scotland or Wales, a few years before uni, would they then be eligible for free university?

Fourthly, what's all this nonsense about not being able to pay back the loan early in order to not give advantage to rich families? Rich families bypass the loan system altogether and just pay the fees up front!!!!

I'm trying to be objective about this, but the more I look at it, the less it appears to be a profitable option, especially for women.

I think that's enough to be getting on with for now. My daughter is only 13, but does want to go to university, but I'm seriously thinking that it's not a profitable idea!

jamesd

2sides2everystory wrote: »

I am right aren't I that apart from the ultimate amnesty at age 50 the outstanding loan on paper at age 49 could have grown outside all our ideas of horrendous given the wrong economic climates between now and then?

You're not really right about that, you're missing two thirds of the picture.

2sides2everystory wrote: »

If my son just borrowed £27,000 but then never exceeded £21,000 a year, then just before he became 50 he would owe over £121,500 assuming an RPI increase of a level 5.2% throughout.

Did you know that earnings rise by roughly RPI + 1% over the long term?

What that means is that if someone had a loan at just RPI and was earning and getting the average increases, their best choice is to delay repaying the loan as long as possible, because the real value of the loan will have increased slower than their earnings, so by the time they repay it, it's a lot cheaper than it would have been at the outset.

But graduates don't see RPI + 1% salary inflation. They see much more. That's a key gain that graduates on average get that those who don't get a degree don't have: a long term increase in their earnings.

Those two effects mean that it's badly wrong to focus on the cost of the loan alone. The whole picture includes the effect on future earnings and opportunities.

Now the loans may be at more than RPI but the income growth of a graduate on average will more than compensate for it, while also delivering a generally better quality of life and increased opportunities.

2sides2everystory wrote: »

What does it really mean? Is it nothing to worry about?

It's something to worry about but not as much as the raw numbers cause it to appear to be. Earnings changes and repayment rates are very important parts of the picture.

If you do want to help him financially, the choice that would probably help him most isn't paying for university or making the student loan repayments. It's lending or giving the money for a property deposit or being guarantor for a mortgage. He can handle the university loan repayments when he has the income. He can't get the capital needed to buy a home so easily. So that's where you can add the greatest benefit for him, when he's most disadvantaged.

TechnoBadger

Deleted. Should have read up first!

2sides2everystory

James, I cannot say I agree that earnings tend to rise by RPI +1%. Surely that's one of those damned statistics which is skewed by the obscene 'rewards' taken by the City in recent years?

No, I recognise the kind of pattern that gizzie121 described - 'wage stagnation if I'm being kind or wage deflation if I'm being honest'...


I have been in Europe this weekend, in the land of the still free (university education!).

My friends have kids here who are also shortly to embark on university educations so this is a serious discussion topic for us all.

As soon as their son reaches 18, as he is still in full time study at a pre-university college he will automatically receive £140 per month as a minimum under means testing (a kind of EMA) - if he were to live away from home and/or his parents were in the relative lower income bracket it could be much more.

Here the state expects to fund (free of any contribution), 5 years of university education from age 18 for all who want it.

Here they do get to read the UK papers and even watch BBC news. They cannot believe the unfair mess we are presenting to our young people.

We discussed this at length here last night and talked about what this student loans company debt was exactly and I explained the ultimate amnesty/write off (although I have got that slightly wrong as reminded by Lokolo), and we looked at the effect of RPI4 projections I had been playing with in a spreadsheet.

We concluded what many had concluded before us, that the new scheme is not a loan scheme at all because it is designed such that a large proportion are likely never to pay off what they "owe" - perhaps it is even another median-targeted design feature - half will never clear the debt. This loan scheme is indeed nothing but a student or graduate tax. That makes it very ugly indeed because unlike any other tax, this one comes with a CRA record that allocates it to individuals as a debt as big as a house.

When interested student unions and others alleged this was always a tax not a finance scheme, I had thought that was just a fashionable spin and we'd heard it all before. But they were bang-on from the start, and in fact this is significantly worse than a common tax - it is a mark of debt that remains indelible for 25 years.

You say the earnings changes and repayment rates are important parts of the picture - the picture as painted by those who designed this c0ck-eyed scheme to remove university education from the government budgets you mean? This is a snake oil pitch.

I ask you james, if it is so badly wrong to focus on the cost of the education and of the loan, and if people like me and my kids need to start incorporating individualised cost/benefit analyses of potential improved quality of life and additional opportunities then why the hell are the government abdicating that kind of government responsibility to individuals? We don't want that kind of government. Someone mentioned true colours earlier. Well we see the true colours of our current government through this now don't we?

It is becoming very transparent to me that this is indeed a Tory idealist way of running things - survival of the fittest, exploitation of the hoards of less fit - of the ants milking the aphids, as I read somewhere. The aphids don't die from the intervention, they just seem resigned to their lot. They aren't tickled by it, they just don't seem to have the gumption necessary to break away from harness.

So it is a student tax, and I'll tell you what else we concluded here in Europe - this new £9,000 a year scheme is a totally unjustified free gift to any university out there that fancies its chances of playing the half-baked rules for assisting the token poor.

It is so awfully wrong. The government should not be making it that easy for any old education outfit to harvest such massive sums masquerading alongside the institutions that really deserve support.

I say scrap this total nonsense of a "finance scheme" and give us back our children's futures and their optimism, and fund it from the ill-gotten gains of the banks and bonus recipients before their top dogs have all scuttled away and flaming well hidden them.

PS I also wanted to say that I agree with gizzie121 on the built-in sex discrimination of this scheme and indeed the abdication of any welfare support beyond 'suspension of payments' during other periods of unemployment. As this scheme is a tax, then it is quite wrong for interest to continue to accrue on the notional debt behind it during enforced unemployment or even voluntary unemployment reflecting quite reasonable lifestyle choices. Just a further example of what a mess this scheme is.

jamesd

Try looking at Measuring Worth, which says that £100 in 1971 would be £1060 with RPI inflation or £1880 with average wage inflation. That's average so high recent salaries could affect it. So from 1971 to 2000 it was £840 with RPI and £1380 with average wages. This link takes you to a chart showing real wages after inflation.

gizzie121 is simply wrong, for the population in general, though for the lower but not lowest earners the increase over time has been fairly small. See The distribution of
household income 1977 to 2006/07 which on page 17, the second page of the PDF, has a figure that shows the after inflation increase in income. Page 21 shows the same thing but grouped by quintile (20% bands) of income in Figure 2. That one shows that the top fifth has increased more than the rest by a large margin but all of them have increased.

But as well as incomes increasing, the share of all income has changed and those on the lowest incomes now get less of the total income pot than before - even though it's still a bigger pot so they get more actual income after inflation. Figure 4 on page 22 shows this.

2sides2everystory wrote: »

This loan scheme is indeed nothing but a student or graduate tax. That makes it very ugly indeed

Lets agree for the moment that it works like tax on future graduates who make more than median income.

Now consider our choices in who should pay for their education. Should it be the whole population through general taxation or those who benefit and make higher incomes? Remember that if you choose free education, you're implying that it's right to tax the poorer half of society to pay for the education of the richer half. While most of that tax is paid by the higher earners there's still some paid by the low earners.

Is it right for the low earners to pay something to educate the higher earners or is it more just to have only the higher earners pay?

That's a philosophical question but in general this country has chosen graduated taxes so that those who are more able to pay are the ones who pay most. I don't think this plan is inconsistent with that approach and I do think it's more fair to not tax the lower earners for the education of the higher earners.

I still don't much like it - after all, we both had grants when we did it - but from a justice point of view it does seem to me to be fairer to those who don't go to university and end up earning less.

If we didn't already have the current or past systems and proposed introducing a new system that taxed the low earners to pay for the education of the higher earners I have a feeling that we'd the recipients of lots of criticism about injustice. So while I don't like it, I do think it's more fair.

I also think that the system became less fair over time. Back when we did it there was a relatively small proportion of people going to university. That increased hugely so the cost has burden also risen a lot. What was a relatively small burden when it was say 20% going to university has become much greater now it's nearer 40%. That increase makes it harder for me to justify having the poorer half of society paying for it.

I agree with you when it comes to normal universities asking for £9,000 a year.