Wednesday, 16 May 2018

The myth of students "burdened with debt."


The idea that since university tuition fees were raised to £9 000 a year students emerge "burdened with   debt" was effectively and vigorously demolished on BBC 1's "Question Time" a couple of weeks ago.  Please watch it on

 https://www.bbc.co.uk/iplayer/episode/b0b20m6b/question-time-2018-03052018#

 for the full effect.

If you haven't time, 22 minutes in a Martin Lewis, the financial guru who founded monesavingexpert.com explains that,  however much is  borrowed, you pay 9% of extra tax on anything you earn over the threshold for 30 years.

Lewis  then spells out the figures for what what this actually means in practice.

At present the earnings threshold is £25 000 a year, so below that the former student pays nothing back.  If earnings rise to, say  £30 000 (nicely above both median and average earnings) you pay 9% on that extra
£5 000.

 Namely all of £450  a year.

That doesn't vary whether the amount borrowed £27 000, £50 000, £90 000 or whatever.  And if you it isn't paid off  in 30 years the "debt" it is scrapped.

Lewis calls it a "graduate contributor system."  Professor Sandford of Bath University half a century ago  (see previous post) suggested something similar and called it a "graduate tax."   Pity Liberal Democrats in government didn't catch on to that.



Lewis stops there, but if you break  that £450 a year down further it's £8.65 a week, or
  • two cheap or one good bottle of wine, or
  • three flat whites or 
  • two portions of avocado on sour-dough toast or
  •  three pints of real ale.
Examples may very depending on where you live, your definition of a good bottle of wine, or you buy your pints in a Wetherspoons or a gastro pub.

So  much much for all the fuss about students being burdened by debt.

Some columnists argue that the present system discriminates against the poorest students, since they are the ones who are forced to borrow, while the children of the rich are financed by mum and dad.  I suspect that wealthy parents with accountants encourage their offspring to borrow as much as possible on this excellent deal, promising that they will save parental  largess for the deposit on their children's first mansion.

It might be thought that an additional 9% on  earnings above the threshold, on top of the 20% standard rate of income tax, making a total of 29%, is a bit steep. However my generation, which received our higher education for free, paid a standard rate of around 33% for most of our working lives,.

So these millennials are still getting a very good deal.

This is not to argue that I am in favour  of all  the system as it it stands.

Charging interest at 9%* on the loan is iniquitous when bank base  rate is a minuscule 0.5%.  And the £9 000 a year fees are being squandered on de luxe en suite accommodation blocks for students and ginormous salaries for vice-chancellors rather than improving the employment conditions of academics and the amount of academic contact time for students.

The "graduate contrition system " is based on the argument that graduates who benefit from a substantial income premium  during their working lives should contribute a bit extra for the benefit their higher education has given them. There is also a legitimate argument that higher education, whilst not exactly a human  right, is a perk of affluent societies and should be available free for those who want it.

It is these these terms  that the discussion should be conducted: not on the false argument that today's youth are being unfairly burdened with unjustifiable debt by a generation that enjoyed these advantages for free.

*  This figure is incorrect.  A friend has pointed out to me that the formula for interest on the loan,is RPI plus 3%, which, of 2018, comes to about 6%, which makes the "graduate contribution scheme" an even better bargain.

Further comment (added Friday 18th May)

The "cast-away" on this morning's "Desert Island Discs" was the successful businessman and philanthropist Sir Peter Lampl.  He perpetuated the "burden" myth by claiming that university students left with a debt of about £50 000 so urged potential students to opt for apprentices and so get paid while they trained.  I agree there's a lot to be said for apprenticeships, but his use of the £50 000  debt myth makes the comparison unfair.

Apparently Lampl's family moved to Batley (my neighbouring town) to live in his grandfather's house when Peter was a child.  He claimed it was terrible.  When asked if he meant the house, he replied, "No, Batley."  Clearly not a reliable source

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