Student Loan 2015 Discussion

setmefree2 · 15 June 2011 at 6:48AM

nmtd wrote: »

FAQ 17 - Let's see this based on the full £9,000 that the majority of universities are going to charge.

I can't understand why there is an assumption of £7500k pa when it's now obvious that tuition fees for the majority are going to be £9k pa.

The MSE figures are understated by a further £4500k? Plus all that interest!

setmefree2 · 15 June 2011 at 7:04AM

MSE_Dan wrote: »

Thanks Andrew,

We've worked on this a bit more now, and have changed the assumptions to be nearer what you discuss (was always the plan to get one version up then refine in time for the weekly email)

We now do grad earnings rising at RPI+2% yearly, and the payment thresholds going up at RPI+1%.These both closely match the best ONS stats we could find - though earnings statistics have always been bizarrely hard to pin down

What's struck me during the process is how marked the changes caused by a tweaked assumption have been. It will be really interesting to eventually find out the levels set by government, and how they affect repayment amounts and timescales.

Dan

So maybe you need to consider what is going to happen if inflation is high?

Your inflation forecasts in the near term seem way too optimistic.

Renters · 15 June 2011 at 7:45AM

Thanks for this guide. Apart from all those on the thread, apparently more fiscally knowingly than me, raising certain points and muddying the waters, it has really helped me put it all into perspective. My son starts at Bath Spa in September and I didn't know that he would be on the old system throughout. Of course, none of us want to saddle our children with debt but what's to do? If you are not able to stump up the money yourself, which we are not (nor for his sister in the near future), then isn't it moot? The fees have to be paid....

Did anyone applying have this happen to them. Being fairly intelligent and capably with regard to on-line stuff, I applied for my son's loan on his behalf as this seemed to be a facility that was open to me on the .gov website. I ended up getting the loan. Paperwork came through with my name on it. Really, not sure what I did or how it came about and I certainly did not show myself as going to uni (his NI number, his UCAS number etc...) but to remedy the situation another application had to be entered (after 31st May.....) from him which, I was told, he has to do. Why is there the option to apply on someone's behalf if you can't? Shame I had to give it back though....

tog22 · 15 June 2011 at 7:51AM

Excellent article Martin. In your email you say "I'm no fan of the English student finance changes, but the political spittle from both sides is just as damaging; promoting myths & confusion while little's written of the practical impact on students' pockets." But this guide illustrates myth-making by the reforms' opponents - their advocates, not so much. The changes make the system more progressive, and as you say are equivalent to the graduate tax the NUS claims to want.

setmefree2 · 15 June 2011 at 8:14AM

tog22 wrote: »

The changes make the system more progressive, and as you say are equivalent to the graduate tax the NUS claims to want.

Can you explain to me how you think the new system is equivalent to a progressive tax please?

Can I direct you to the following:-

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate. It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.

http://en.wikipedia.org/wiki/Progressive_tax

and then direct you back to FAQ 17 in the guide.

setmefree2 · 15 June 2011 at 8:20AM

tog22 wrote: »

But this guide illustrates myth-making by the reforms' opponents - their advocates, not so much.

This guide is based on the biggest myth of all - that student tuition fees will be £7,500 pa. smiley_shrug%5B1%5D.gif

and the further myth that the RPI will be 3% in the near term smiley_shrug%5B1%5D.gif

So some might argue that it just reinforces the coalition myths? and has little to do with reality?

MSE_Martin · 15 June 2011 at 9:13AM

setmefree2 wrote: »

A great guide. I have one concern. The assumption that RPI is 3%. The problem is that RPI is currently 5+%. Barclays Capital is predicting RPI at 6.4% by October.

Maybe over 30 years 3% RPI is a valid assumtion but right now it doesn't reflect reality. At RPI 5% plus 3% these loans will have racked up interest of c£8,000 before students graduate. That's another £8k that will be attracting interest for 30 years.

Surely this should be taken into consideration when weighing up the cost of one of these loans?

Maybe this wouldn't be an issue if wage rises were keeping up with inflation but they aren't.

Hi - we've gone with a long term average of RPI - which was deliberate as this is a long term repayment - so we didnt want to get pulled by today's current highs (also govt target is roughly 2.5% (roughly as its on CPI and we're talking RPI).

Also in truth the actual level of RPI is relatively commutative throughout the assessment which is why we converted it into real prices too - which negates much of the effect of our RPI assumptions.

Sadly this table is impossible without assumptions - we thought hard and discussed long what they'd be. In the long run we hope to build a calculator where people can change these assumptions but for launch we had to pluck something and I hope I sufficiently caveated the whole thing to make people realise its far more about scales of magnitude than the actual numbers.

MSE_Martin · 15 June 2011 at 9:16AM

setmefree2 wrote: »

This guide is based on the biggest myth of all - that student tuition fees will be £7,500 pa.

and the further myth that the RPI will be 3% in the near term

So some might argue that it just reinforces the coalition myths? and has little to do with reality?

No its based on a mid-point a £7,500 fee. Plus we've based it on the living away from home loan. While some will pay bigger fees, many will get much smaller loans (due to living at home and grants). So again we chose a balance figure (and while many universities are listing £9,000 fees lots aren't especially higher education institutes that get no publicity)

I refer you to my note above. This was done to give scales of magnitude and very strongly tells people what to do in different circumstances. This spreadsheet was not an easy one to build - it took a lot of work - so we had to take assumptions.

Again we hope to produce a calculator long run.

tog22 · 15 June 2011 at 9:48AM

setmefree2 wrote: »

Can you explain to me how you think the new system is equivalent to a progressive tax please?

Can I direct you to the following:-

http://en.wikipedia.org/wiki/Progressive_tax

and then direct you back to FAQ 17 in the guide.

Well the table in FAQ 17 makes the point, although admittedly it breaks down at very high income levels. The fact remains that all payments come from above-average income earners (£21,000 having been chosen as an average), whereas on the old system poorer people who never went for university paid for those who did (who generally, especially in those days, went on to become distinctly well paid).

catinthehat · 15 June 2011 at 10:42AM

What about parents who DO help out - at what level/time can they make the most impact?

I'm just looking at the 35-40K earners in the table and feeling quite faint at the ENORMOUS totals wasted on interest rollups
Surely it would make sense to get a bit of parental cash in there to reduce it - OK, it potentially reduces the ultimate inheritance to the child - but £107k repayment for a £39K loan is staggering

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