Student loans
Back in the early 1990s in Denmark, students could easily get cheap loans to finance their studies. The result was that a generation of students ended up with massive debts that they couldn’t realistically pay back.
So a few years before I started university, they introduced much better grants and restricted the ability to get student loans in order to ensure that nobody would be saddled with debt they couldn’t pay off.
England now seems to be going in the opposite direction.
Given that their is a limit to how much graduates can be forced to pay back every year, and given that the plan at the moment is to write off any debt left after 30 years, for most people there will be no point in restricting their borrowings.
That is, they won’t go to a cheap university, but will instead apply to the most expensive ones and borrow as much money as they possibly can to fuel their consumption.
Poor buggers if future governments decide to scrap the repayment limit or the 30-year write-off point!
Is it really a graduate tax?
I was provoked by an article in The Guardian by LibDem MP John Hemming today, in which he argues that the new English system of tuition fees is basically a graduate tax:
[F]or 54.2% of students in the future it does not matter how much their tuition actually costs. They will pay the same 9% of income over £21,000 a year for 30 years. In other words this new system is a graduate tax in all but name.
Does he not regard it as a problem that graduates whose parents were rich enough to pay their fees upfront won’t have to pay his so-called “graduate tax”? (Let’s face it, even fees as high as £9000 a year are not too shocking to upper-middle-class parents who have just finished paying equivalent private school fees!)
Does he not regard it as a problem that top earners (tomorrow’s bankers, for instance) will have to pay off less than the usual 9% for 30 years?
This is a graduate tax with an opt-out for the rich!
That said, I don’t think a graduate tax would work, either, and the only real solution is to go back to state-funded universities, finding the money by cutting admission numbers.
Do you want a house or a degree?
In an article in The Telegraph about the problems facing first-time buyers after the credit crunch, my attention was drawn to the claim that “for the first time, graduates might be better off not repaying student debt when they leave university, because the only chance they stand of home ownership is saving for a deposit from the age of 21″.
I wasn’t aware that graduates had an option of not repaying their student debt (unless their salaries are rather low), but I think it’s an overlooked consequence of tuition fees.
The problem is that if you have to pay off your student debt for years, and if your salary isn’t high enough that you can afford to pay off debt and save for a deposit at the same time, you’ll end up a home-owner potentially much later. (It’s not as simple as just saying that you’ll become a home-owner five years later. If you’re very young, you might be willing to live with your parents and save a lot, but the older you get, the more likely it is that you’ll have a partner and perhaps kids which will make saving for a deposit much harder.)
Of course house prices aren’t rising at the moment, but once the recession is over and they start going up again, timing matters – the flat you could have bought with a £5000 deposit in 2000 would have been completely out of your range in 2005.
I suspect there will be a lot of graduates that will actually never become home owners, because they won’t manage to pay of their student debt before they become parents, but at the same time, they probably won’t have great pensions, so we’ll be looking at some very impoverished pensioners fifty years from now, unless tuition fees and graduates taxes are abolished soon.
Free university education and private universities
On the Andrew Marr Show this morning, they were again briefly discussing tuition fees vs. a graduate tax, and it was mentioned that annual fees at the best universities might rise to £10k a year.
This is crazy if we’re talking about state universities. In the US, fees are “£3,572 a year (although students at private universities pay a lot more on average, £13,877)” – and don’t forget that American parents tend to save up for their children’s university education from the day they’re born.
I’m starting to think that the move towards higher and higher university fees in England are due to Oxbridge comparing themselves to the Ivy League in the US, which are extremely well-funded universities.
Proponents of tuition fees tend to argue that it’s OK so long as there are grants for the poorest students, but what about the 80% of the population in the middle that aren’t poor enough to qualify for the grants, but not rich enough to pay for all their kids’ tuition fees and accommodation, either?
Also, tuition fee fans often say that the graduate premium (i.e., the amount of money you earn extra because of your degree) is so high that it’s a no-brainer to get a university education, no matter how much it costs. If that’s the case, why should anybody get a grant, so long as there are loans available to postpone payment till they’ve embarked on their hopefully lucrative careers?
The way I see it, if people make so much more money over a life time if they go to uni, they will presumably pay more tax, too, so it should be a no-brainer for the state to send young people to uni, paying for their education and giving them grants to give them the best possible basis for making a fortunate and paying a lot of taxes.
On the other hand, I have a feeling that Oxford and Cambridge will never be satisfied with any level of state funding. So why don’t we simply cut them free and make them private universities without any state funding whatsoever, except for charitable status if they give free places to poor students, just like private schools? They’re probably famous enough that they can attract more than enough students worldwide who are willing to pay £15k a year.
We should then move the remaining universities back to exclusive state funding, and reintroduce student grants allowing students to concentrate on their studies, but at the same time make universities tougher again to ensure graduates are ready for a globalised world.