'If no-one will fully repay £9,000 student fees, how is the system sustainable?' blog

flimsier

2sides2everystory wrote: »

The country has supposedly got hugely more wealthy since then but who's got it?

Well quite.

anewman

Completed my degree in Psychology, finishing back in 2005. Never managed to get anything above minimum wage in a job. Doubt I'll ever pay anything back, unless minimum wage ever takes my earnings over £15k. This is despite getting a First Class Honours degree in a moderately useful subject. Useful in terms of things like Statistics, in modules where Statistics was used more I tended to achieve better, and ONS will take on people with a Psychology Degree. I even went further and got a Career Development Loan to do a Masters in which I achieved a pass with merit.

In my case though I suspect it is having Asperger's Syndrome, which makes the interviews difficult and I probably do not come across to prospective employers well. That's probably the biggest barrier to gainful employment for me.

Intriguingly my partner also went to University and her parents paid for everything - with the mistaken belief that a student loan = debt. She'd have been far better off taking the loan as she wouldn't have paid anything back yet (curse of national minimum wage) and would have had the fees paid under the system as it was at the time. Both her parents were primary school teachers, so should have understood the system better IMO.

BACKFRMTHEEDGE

MSE_Martin wrote: »

Yet equally I don't support confusion or misinformation about the changes when it puts people off going to uni when they shouldn't be put off (if they make a rational decision based on the facts - not to go - by thinking the new system is too expensive that's fair enough).

Well now I'm confused :think:

You are ACTUALLY saying that a young person might rationally reach the conclusion that the new system is too expensive and decide not to go to Uni, if I'm correct.

tyllwyd

BACKFRMTHEEDGE wrote: »

Well now I'm confused :think:

You are ACTUALLY saying that a young person might rationally reach the conclusion that the new system is too expensive and decide not to go to Uni, if I'm correct.

Well, to be fair to Martin, it is perfectly possible that a young person might decide that the new system is too expensive. But they might also have decided that the current system is too expensive, or the system in place before that. I went to uni at a time when there were no tuition fees and a grant was available for living costs, but I had several friends who decided to go straight into work and start earning immediately rather than spend three years at university. There is always a decision to be made by potential students.

wozearly

2sides2everystory wrote: »

Hopefully that was not a play on words ...Well I finished my degree before 1979 and neither I nor my parents paid a penny for it and nor could we have done. I was not a member of an elite and I was not an unusual case. I got a full grant and I eked it out on books and accommodation and food (salad sandwiches for the last few weeks of term!)

The problem Martin might be that you are too young to realise what was once possible and the norm under the Union Flag

The country has supposedly got hugely more wealthy since then but who's got it?

...but this goes back to Martin's point about participation levels. If only 2% of the population take degrees, asking the remaining 98% to fund it in full via taxes for the public good isn't a huge financial burden because its spread so thinly, and there is clearly a public benefit in our educating a future tranche of doctors, architects, engineers, etc. who will add value to the UK economy and, as expected higher rate taxpayers, make an above average contribution themselves through the tax system.

However, it only works if you keep participation small by limiting the numbers that can attend university via some mechanism or another - which clearly isn't what people want, or where the wider world is moving with education.

If you try the same system of grants when participation is allowed to be around 50%, the taxation burden becomes much more significant. The logic of asking graduates, who on average are the main financial beneficiaries of their degrees, to contribute more themselves gets more weight behind it.

The only way to avoid that and make education free to the student is to get other groups to foot the bill for them - as you've pointed out, there are ways to do that via the taxation system. For example, you could single out the highest earners, or highest asset-holders, and hit them for the full whack.

...but ultimately, every decision has consequences. Hitting high earners is always a good populist proposal, but it generates two obvious problems - firstly, you disincentivise ambition. Theoretically speaking, what's the point in throwing in the extra effort if the government pockets 80% of any extra you earn?

Secondly, you incentivise avoidance - generally income-rich groups are more able (and willing) to move internationally and arrange their tax affairs efficiently, so unless the tax systems in other countries move in the same way as the UK, expect to see an exodus of wealth. Once its gone, you can't tax it...so the non-wealthy have to start picking up the bill again.

The land tax / mansion tax concept is actually one of the government's better proposals, but again, you probably wouldn't make all that much money unless it was punitive because there aren't all that many vast landowners...and if its punitive, you'll kill your cash cow within a few years and have to find the money some other way afterwards.

For the record, I'm all in favour of progressive taxation systems, but the frank truth is that its not possible to continuously hit the wealthiest 10% of individuals and companies to stump up the money for all additional government spending. Its a question of economics rather than politics.

colgard

Knowing how much grammatical errors annoy you, Martin, I thought I'd point out the misuse of the word "effect" in the 3rd paragraph of the above piece. Probably just a slip in your haste - but nonetheless a very common error these days. Roughly, "effect" is the result of one thing acting upon another while "affect" is what one thing does to another. Sorry to be so pedantic but I know you appreciate the finer points!!

flimsier

wozearly wrote: »

For the record, I'm all in favour of progressive taxation systems, but the frank truth is that its not possible to continuously hit the wealthiest 10% of individuals and companies to stump up the money for all additional government spending. Its a question of economics rather than politics.

You think that the top 10% have been hit continuously? :eek:

O...K... then.

Funny how disincentivising ambition doesn't apply with fees.

melancholly

antonia1 wrote: »

Thanks for the new tool, it does help me see how the new system works in comparison to the system I had (started uni 2003). Under the new system I would pay back roughly the same amount total, but over 30 years and then have the debt wiped, where I am currently expecting to pay my loan off after 17 years (assuming no career breaks, salary increase 1% above inflation on average, my engineering firm doesn't relocate to central Europe).

that's really interesting... so despite the increase in fees, not much difference to you in the long run. can i ask what you earn (a bit personal, i know), just to give an idea of what kind of salary you're talking about?

it would be largely ridiculous if for a lot of students, the change in loans makes very little difference to how they pay them off. granted there is a scary implication for the government balancing the books (but even last year, plenty of people/think tanks/economists said the numbers didn't add up!).

wozearly

flimsier wrote: »

You think that the top 10% have been hit continuously? :eek:

O...K... then.

Funny how disincentivising ambition doesn't apply with fees.

I'm not saying they have been hit continuously - to be honest, they've got off relatively lightly during the recession. I was making a wider point that its not economically possible to hit them every time people are looking for a 'painless' solution to any and every funding issue.

The way that the new system has been packaged does risk disincentivising ambition amongst potential graduates because of the fear factor attached to the headline loan amounts and, for the really high earners, a significantly larger cost than the current system. Its one of the key reasons I don't like it. But in a different thread we explored the point that super-high earners still come out on top financially after repaying the loan in full, because even with higher repayments you're still keeping 91% of any extra income (pre-tax), so if their degree was a requirement of the higher salary then they'd be bonkers not to take that trade-off. The previous system is just even more generous.

My point was that shifting this disincentive to ambition across to disincentivising ambition amongst top earners is not a lossless trade-off - I didn't speculate on whether or not it would be a better trade off.

Whilst I sympathise with some of the thinking behind the new fees / loan system, I'm not a fan of it. Ironically, a lot of the ideas in isolation make sense - trying to introduce an element of price competition amongst universities, making graduates contribute more towards the cost of their degree than non-graduates, making the student loan repayments more progressive / forgiving to lower earners. I don't personally have a problem with any of those concepts.

For me, its the implementation that's flawed and poorly thought out - the massive hike in tuition fees, the convoluted repayments system, the insidious impact of charging above RPI interest on the loan (and charging interest whilst studies are still continuing), the repayment threshold being set so low that most graduates will see the loan amount increase for years after graduation (a side-effect of the large headline loan figure), the ultimate likelihood that most graduates will never repay in full and the lengthy musings on whether early repayments or overpayments would even be allowed (is it a loan, or a tax disguised as a loan...).

Ultimately, it would be great if we could offer a free university education to all UK students who wanted to pursue one. But if we do that then someone, somewhere, has to stump up the bill. And as we've seen in discussions around benefit cuts, everyone will be quick to come up with reasons why it should be somebody else and not them.

2sides2everystory

wozearly wrote: »

...but this goes back to Martin's point about participation levels. If only 2% of the population ...

Yes you are darned right it is about participation levels and if only ...

If only the disgraceful bonuses paid to the in-crowd spivs in the City were taken back and used to educate those that deserve it not those that were part of a gang that stole it.

There are countries in Europe where there are little or no tuition fees for university students or other types of FE to as far as age 25 I believe in some of them. Let's list those countries. Do they have a dumbed down workforce like us? Don't think so. So how did they get to be not dumb? By 2% university participation levels ... Er don't think so ...


Who will start the list?

Here's one that will do for a somewhere close to home, won't it?


SCOTLAND





Which others ... ?