There has been a lot of media coverage recently on the fairness, or not, of student loans to undergraduates. Presumably those behind the National Union of Students campaign on this issue will be happy with the coverage.
In the debate in the media several good insights have been drawn out. See the table below and some further detailed points further down this article under sections A) and B).
But three other fundemental issues appear to have been ignored or missed in the debate on student loans so far.
1) The media, and indeed politicians, continue to talk about Student Loans, which is just plain misleading. A Student Loan isn't a loan so don't treat it as one. Its an additional tax on higher earning graduates to contribute to the cost of higher education. In fact if you think of it as a loan you may end up making some dumb repayment decisions.
2) The Student Loans Company (STC), is the government owned not for profit organisation that manages the student loans. STC says it has a loan book of some £294 billion and that the loans owned by HMG are recorded in the accounts of DfE. Somewhat interestingly, STC also states that the loan book is predominantly owned by HMG and partly owned by private investors.
3) Part of the unspoken incentive for people going to Uni was that not only would they be better educated, but that their changes of higher incomes would increase. Simple maths has always indicated the partial falacy of that promise. If 40% of a generation go to Uni, then a maximum of 1 in 4 of those graduates will be in the top 10% (some £60k p.a. or more) of earners in that generation - and thats assuming all the top 10% of earners are graduates. And of course they'll be taxed more heavily as graduates (see 4) below)
4) With the extra 9% tax on earnings over £29k, (after the £12k zero rate tax allowance), thats almost an extra 50% of tax compared to non-graduates on the same income. When the higher 40% tax rate is reached at £50k ish that means graduates are paying a 50% tax rate. Some graduates who are now journalists have used their columns to highlight how this starts to become a disincentive to take extra work & income.
Martin Lewis and some others has also tried to alert parents and potential undergraduates to the following issue.
5) Since Plan 2, parental income has basically limited how much maintenace/living loans an undergraduate can get. If you're a parent with several off-spring wanting to go to Uni, with them you need to work out how much you can afford to support all of them fairly with their living costs. I suspect many have been caught by this wrinkle, meaning undergraduates have had to take jobs whilst at Uni to afford living costs beyond their accommodation.
Why were student loans first launched?
A) Its worth remembering that supporters of Student Loans say they were introduced for the following reasons:
A) Its worth remembering that supporters of Student Loans say they were introduced for the following reasons:
1) They enable people from lower income families to attend further education;
2) Graduates should make a contribution to the costs of their higher education;
3) Graduates that get paid the most after "Uni" make the largest contribution to the costs of further education.
Reforms that are needed
B) The campaign been run to make student loans fairer is focusing on the following types of issues:
1) Make the interest rate CPI as government uses CPI for inflation (RPI gives a higher %);
2) Increase the threshold at which graduates pay 9% extra tax by CPI annually.;
3) Its good that maintenance grants for low income households have been re-introduced.
