'Does the Adam Smith Institute understand how student loans work? ' blog discussion

meher · 2 March 2012 at 12:07PM

if I may go offtopic for a mo, I think mse should create a syllabus for students on basic finance education, sponsored :snow_grin by visa and mastrecard

antonia1 · 2 March 2012 at 12:15PM

To those who are complaining about the RPI + 2% salary increases that Martin is using in his example - this is not at all unreasonable. In fact, it is the exact same increase assumed by plenty of economists, my financial advisor and my pension company. It may not be perfect (and is actually higher that the pay increases I have had since graduating in 2008), but it does give a reasonable approximation for future earnings.

Also, can we please stop accusing Martin of being pro-government? He has stated over and over again that he has absolutely no political influence to affect these changes to the student loans. What he is doing (an indeed we should all be doing) is to try to explain a very complicated system to a lot of young people who have no idea how to calculate these things.

jamesd · 2 March 2012 at 8:15PM

JimmyTheWig wrote: »

I think that finding a typical or average pay curve would be key to making this unbiassed.

How about mine? There would be just five to ten years of repayments right at the end of the term if my income picture was used and it wouldn't make any sense for me to overpay because most of the debt would be eliminated after thirty years.

To a large extent this doesn't matter much because a significant part of the focus is explaining to those who are from poorer backgrounds and worried about not earning much that it's safe for them to decide to go to university because the repayments won't be overwhelming for them later. Those from relatively well off backgrounds who end up in relatively well paid jobs already have sufficient income that it's not a huge burden anyway, whether there are overpayments or not.

In background and earnings history I'm the sort of person that the graduated system ends up protecting.

tyllwyd wrote: »

I'm not convinced that overpaying when you are financially comfortable is going to make a lot of differnce because very probably you will be reasonably far into the 30 year repayment period by then - by that time, either the interest has accumulated so much that you are chasing an end point that you are never going to reach, or if you have been on a high salary for a while, your repayments are paying off your loan at a faster rate, so the impact of the interest won't be so great.

At that point it's like any other debt, what matters is whether the interest rate makes it worth getting rid of compared to other uses for the money. The really interesting part is the protection for low earners.

melancholly · 2 March 2012 at 8:35PM

poppy10 wrote: »

Sure, if your salary starts low and remains low then you won't have to repay as much, but then what is the point of going to university if this is the career path you are hoping for?

i guess some people at university are there for the love of learning, rather than using it as a stepping stone to the city?!

Derivative · 2 March 2012 at 11:27PM

melancholly wrote: »

i guess some people at university are there for the love of learning, rather than using it as a stepping stone to the city?!

In the past this might have been true.

The tuition fees rise basically makes it a foregone conclusion that going to University is the equivalent of taking a career development loan.

To anyone starting University today I would have them think long and hard about career choices, because quite frankly, I don't think that the repayments I'll have as a 2010 starter are worth it if not for the potential salary increase, never mind the new system.

Learning for its' own sake is certainly admirable, but paying £50,000 for a degree and then suffering commercial interest rates? Not for me.

poppy10_2 · 3 March 2012 at 12:12AM

melancholly wrote: »

i guess some people at university are there for the love of learning, rather than using it as a stepping stone to the city?!

When you are paying £9k a year tuition fees, you have to think seriously about whether it makes sense to study a course that will not actually improve your career prospects. It's a shame, I agree there should be a place for people who just want to improve their knowledge or learn more about a subject they love, but the kind of figures we are talking about are crushing burdens and have already started to put people off studying non-vocational degrees.

setmefree2 · 3 March 2012 at 12:50PM

MSE_Martin wrote: »

3. I take offense that you say the student finance calc is rigged - it is the ONLY calc of its type out there that allows you to change assumptions. The reason you can see the difference changing that stat makes is because the calculator gives you that option! I wanted that to be a part of the calc when we build it so people could see different scenarios.

I don't think it is, is it?

Here's one from the BBC.

http://www.bbc.co.uk/news/education-14785676

JimmyTheWig wrote: »

I think that finding a typical or average pay curve would be key to making this unbiassed.

The BBC Student calculator tries to do this I think by analysing projected salaries of different professions.

setmefree2 · 3 March 2012 at 1:26PM

MARTIN LEWIS' BLOG I say the Government should TELL people not to overpay
In fact, I think the system is duty-bound to warn people when they overpay their student loan if they won’t gain from it. Even now, many get it wrong. Under the current system the average salary of people who overpay is just £18,400. While this is likely to be pushed up under the new system, it still means many who pay early will already be financially penalising themselves.

What? ALL graduates? Are you suggesting that the government should tell ALL graduates not to overpay? How is the government telling graduates not to overpay fair on the one's who should overpay?

Do you think you worry more about graduates who will overpay when they shouldn't, than graduates who won't over pay when they should? Do you think this is a real assesment of the probablity of the former occuring over the latter or does it just tell us that ML doesn't like paying for something when he shouldn't?

Is it really the government's responsibilty to start interfering in this way? Afterall, you need a crystal ball to work out whether you should overpay or not, if the truth be known. The government could be putting graduates off overpaying when those graduates should be overpaying.Of course, the reverse could also be true. The government should leave it to the individual to make their own mind up surely?

melancholly · 3 March 2012 at 8:26PM

poppy10 wrote: »

When you are paying £9k a year tuition fees, you have to think seriously about whether it makes sense to study a course that will not actually improve your career prospects. It's a shame, I agree there should be a place for people who just want to improve their knowledge or learn more about a subject they love, but the kind of figures we are talking about are crushing burdens and have already started to put people off studying non-vocational degrees.

you see most advice being given out is to take a traditional degree since that gives the best chance of a 'good' job and gives the widest range of opportunities to go into. many big firms actively avoid graduates with accounting or business degrees!

maybe universities should offer degrees in using office applications, telephone manner, multitasking, attendance, annual reporting etc! if the job of a university is to prepare people for work, then that will require a massive change in direction. that isn't happening right now. (it would also result in all scientific research effectively going abroad, which is a shame as although basic research isn't instantly able to have a commercial application, it needs to be done for work further down the line).

if a uni degree is about a career choice, then my advice would be for people to put it off a few years - making a decision to go to a specialised, purely vocational course that will define and limit your career options for life (since almost no-one will be going back for a second try and paying the fees entirely themselves!) at the age of 17 can't be remotely sensible........

a student loan is also not a 'crushing burden' either. someone earning £35K - a pretty good wage imo and more than i make - will pay back £105 a month. hardly a 'crushing' amount. this is a loan repaid in proportion to earnings, with terms unlike any other debt. it's a shame that people are still focusing on the totals at this point, especially after reading all of Martin's blogs/guides. (and before anyone misinterprets my position on this, i have always been actively against all the changes, but the fact that they are so badly misrepresented is frustrating and since one of my main concerns was that the changes would harm access, i think it's important to make this point clearly - and apparently, important to make it over and over again).

setmefree2 · 4 March 2012 at 10:33AM

I noticed this Twitter response to ML's blog

I'm blog editor at the ASI. Our author posted this response to your article:

As the author of the ASI article, I'd like to point out that I in no way advocated that students repay their loans early. Clearly, the system is structured to make that foolish for many borrowers as you rightly note. My point is that we have set up yet another scheme whose true costs have been hidden from current taxpayers and dumped onto future taxpayers. It's the kind of scheme that got us into the credit crunch and sovereign debt crisis and now the Student Loan Company game is well under way to further milk the unwitting taxpayer.

This is the point of the original ASI blog and a point that ML has completely chose to ignore.......

'Does the Adam Smith Institute understand how student loans work? ' blog discussion

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