The Government’s website factsonfees needs to be more widely known about. It busts some prevalent myths and makes it clear that, for the vast majority of people, the new system about which we are all so upset is actually better than the old one.
We should bear in mind, when we are getting upset about the bottom line figure of £9000 per year, that virtually no one will end up paying that. One other very important and positive addition is the cancelling of any debt after 30 years.
Reading this, you may think I am one of these rare people supporting the fees. I’m not. I happen to think they are better than the current system, I also happen to think the Lib Dems have done quite well to give us a far more progressive system than we would have seen had the Torys been acting alone. Finally, while the general population benefits from the education graduates receive, they don’t benefit as much as the graduate themselves and so I am also broadly behind finding some* of the money to fund the next generation’s education from the increased wealth of those that have benefitted before.
But…
I think Nick Clegg has behaved like a politician throughout this whole thing, and not the new kind he promised. If he had said “we don’t like this, but we are in a coalition and we have done our best to make a bad deal more palatable and it is better than the old system”, I would have been behind him all the way. But instead, he tried to fob everyone of by selling it as a good idea and it isn’t.
Fees are a bad idea for one reason and one reason only – the fear of being in debt puts people off going to university.
That may be a misguided fear and, according to Nick Clegg (who is, I think, backed up by the data) it is. People shouldn’t fear the debt tuition fees will leave them with. But they do and no amount of cajoling or berating is going to stop that.
Leaving the current system more or less as it is but renaming it Graduate Tax may be all that is required. Rebranding sounds like shallow nonsense but in this case the diference is meaningful, at least for the large UK muslim population. Paying interest is against the Islamic faith; some do it, but many will not. A lot of the country’s muslims are also the country’s poorest and so that is exactly the demographic the Government is trying to get to go through higher education. Simply renaming the system as a tax rather than fees and student loans would solve that problem at a stroke.
Sometimes it isn’t enough to do the right thing, you have to do it the right way and for the right reasons too.
*note I said “some”. I was broadly satisfied with the 40:60 split we had before the last budget and one of the things that seems to have passed almost unnoticed through this kerfuffle is the rebalancing of that to 60:40. That, more than any row over student loans and increased fees, is the biggest threat to a publicly funded education system we currently face and that is what we should be shouting about.
I so, entirely, thoroughly agree
I’ve been trying to spread this thinking to everyone I know, and I still don’t understand why the government has been so bad at selling the changes to everyone (though I guess a lot of it comes from the Tories not wanting to be seen to be raising taxes)…
http://www.guardian.co.uk/science/political-science/2010/dec/09/tuition-fees-liberal-democrat is another decent thing to read.
All that said, I’m a bit surprised by Myth 10 on http://www.factsonfees.com/ – they seem completely to skip over that the minimum payment threshold *doesn’t* have to be the same as for income tax, and also skip over the fact that a graduate tax would remove the upper cap, making the system more progressive… But hey
On point 10, I don’t actually know what Labour’s plans were, but is it possible that they had set the minimum threshold to be the same as income tax? Perhaps factonfees are specifically countering *Labour’s* graduate tax and not graduate taxes in general?
I think that what you have here is a “best case” scenario, but that’s just my opinion and we’ll all just have to wait a decade to see how the numbers all pan out.
Anyway, I have a couple of actual points as well. Firstly, no one’s explained how the numbers add up to me. So, If someone goes to university and pays the minimum £6000 per year and does a regular three-year course, then the capital amount that they have to borrow for the fees is £18000. When I had to pay fees they were only £1000 per year, but my loan was for close to £3500 per year, since it covered some living costs. Is this still going to be the case? Will there be an extra amount of loan each year to pay for accommodation, food and study materials? If so, this could easily add a further £3000 per year (allowing for the increased cost of living since I was at uni). OK, so that adds £9000 to the total amount and we have a rough minimum value of about £27000. The myths page says that the repayments will start at 9% (of your net pay, I presume). If you’re earning £21000 pa, this is a repayment of £1890 pa, or £157.50 per month. That’s about £50 per month more than I currently pay? Also, there’s no interest included in this either.
The site says that the interest will be calculated at RPI + 3%, which works out to 7.5% with the current RPI. If you add all this together, the interest on £27000 is £2025, which is more than the repayments? That means that you’ll always be paying off the interest if you earn the minimum amount. My basic calculations suggest that, with these numbers, you won’t start decreasing the loan amount until you earn at least £23k, and then it will only be a net £4.50 per month. So, you’ll spend the whole 30 years paying interest to the loans company and after those 30 years you’ll have reduced the capital amount by just over £5000, but you’ll have paid the loan company £62100!
Actually, if you earn a pretty reasonable £30000 pa, by the time that you finish paying for everything, you’ll have paid a little over £50000 (actually, £50175, but the numbers are all rough). Now, if you earn £60000 pa, you’ll pay the loan off much more quickly and the whole thing will cost you just £33750, a saving of over £16000. That doesn’t sounds like it’s making the amount you pay proportional to your ability to pay in the future. Yes, you pay more per month at £60000 (£450) compared to £30000 (£225), but you pay way less in the long run. Not fair at all. I know that there is some thing about higher earners paying it back at a higher rate of interest, but there are no mumbers on how this will work. Of course, this is the case for the current system as well, but the capital sums are much less, so it’s’ not so pronounced, and the interest rate is lower (at least it was at the start). The only way to make it fair is to make the repayment term fixed somehow, but then that’s just a tax and everyone seems to be against that.
Anyway, if you have any better numbers that mean that the people who earn most pay the most then I can give you the spreadsheet that I made and you can test them out
Apologies. Made assumption of 7.5% interest for all. This isn’t true. Interest varies with earnings. Recalculated considering this (using figures from mythbusting site). Better, but still costs less to be richer, for borrowing of £27000:
earn £21000, pay £43470 (costs £16470)
earn £30000, pay £41000 (costs £14000)
earn £60000, pay £33000 (costs £6000)
You are awesome…
I don’t have any better numbers and that, I think, points to another major flaw that is also mentioned by Evan Harris in dwh’s Grun link above: this system is so complicated, no one actually seems to have any real numbers. I doubt things will be as bad as your sums imply but how can we be sure?
BTW, aren’t we the same age? How did you get through uni paying tuition of £1k p.a. when it cost me £3k p.a.?!
My fees were £1000 in the first year and increased by £25 per year , so £1100 in my fourth year. My loan was for something like £3500 per year though, since I guess it was supposed to cover living expenses as well.
The problem with these calculations is that you pay back 9% of your income *over £21k/year*, not 9% of your income. So if you earn £21000 for life, you pay back *nothing*. If you earn £22000 in a year, you pay back £90 that year.
When I did some back-of-envelope calculations, you had to have earned a total of the order of £1m before you would ever actually pay off the full loan, so in effect you’re paying back 9% of your income over £21000 for 30 years unless you end up earning at least £300k/year.
That means that if you’re earning a flat £30000 for 30 years from graduation, you pay back £2700 in total.
Ah ha! That’s better, good work dwh
Ah, yes I should of realised that! Actually, this kind of raises the point that I was trying to figure out in the first place. That is, if many people will borrow some largish sum (say £27000) and only pay back some fraction of the original capital (£2700) in the case mentioned above, then how does the loan company make any money? Lenders absolutely have to get all the capital back and then a substantial amount of the interest to be viable. If the government is going to step in and back the student loans company up, then why don’t they just fund the students directly and save some money?
The SLC *is* part of the government. The loan company doesn’t make its own money; the loan company is just the public face of where students borrow money from the government
OK, recalculated with the only paying 9% on what you earn over £21000. You have to earn more than £43500 pa before you start beating the interest payments. The worst amount to earn is £46190.42 pa, this amount lets you pay your £27000 loan off in the allotted 30 years. At the end you’ve paid about £68000 (cost = £41000). Mr £60000 will pay the loan off in just over 11.5 years and pay a total of £40675 (cost = £13675). It still pays to be richer.
This system appears to be “better” for anyone earning up to £31000 pa. These people will pay less than or equal to their original £27000. Then it starts getting worse until you earn about £46200, when you’re paying the maximum. Then it gets better again, since you’re now earning enough to pay off the loan before the end of your 30 years.
Obviously, these figures are based on what I could get from the mythbusting site and a figure of borrowing £27000. If you did a 4 year course at a £9000 per year university you could easily borrow £48000 (inc. living expenses). In this case the minimum earnings where you can:
Payback capital amount = £38 800 pa
Pay back Capital and interest = £65 783 pa
£38 800 pa is quite a high amount of money to earn before the loan company starts making money. OK, I think I’m done. I look forward to the government releasing some actual numbers.
Two things to add:
1) Maintenance loans will add another ~£10k to your loan, so the hump will be a bit higher. I agree that it would be better if the line kept rising, or at least flattened out to the top level rather than going back down.
2) “Then it gets better again, since you’re now earning enough to pay off the loan before the end of your 30 years.” – the context of that “better” matters a lot:
Up to £31k you are better off than in the current system.
Over £46k you are better off *than if you’d been earning £45k*, but are still paying a bunch more than the status quo.
Out of interest, has your calculating produced any pretty graphs, or has it just been fiddling some numbers? If there are graphs, I would love to see them!
I made a plot of the total repaid against annual earnings. It can be viewed at here
It’s for borrowing £27000.