How would you finance students if you were in charge? The new system to come in next year involves students paying nothing upfront (unless they want to), but accumulating a debt at university, which they will then pay off at the rate of 9% of their salaries once that salary has gone over £21,000. No one much likes this system – the students because they have to pay in the first place and the likes of me because the system acts more like a graduate tax than a loan and I would prefer us to be upfront about that.
However, Ed Miliband dislikes it for another reason: he thinks that the system will put the poor off applying. His solution? Cap tuition fees at £6,000 rather than the current £9,000 a year. That makes the total debt look smaller and less intimidating. But there’s a problem. Due to the way the new system operates more like a tax than a loan, reducing the size of the debt like this does nothing to help low earners; it just helps high earners.
Student blogger Graeme Strachan Cowie (Predictableparadox.co.uk) explains it like this: under the current proposed scheme, if a student earns less than £35k as their initial graduate salary, and their earnings rise to slightly less than £140k after 30 years, they will not have paid off their student loan – regardless of whether or not they actually chose a course that charged £6k a year or £9k a year. There is no real correlation between what is owed and what is paid. You can look at the fees calculator on Moneysavingexpert.com to check all this.
But if a student earns £50,000 initially and that rises so that after 30 years they are earning over £200,000, they will pay back the whole of their student loan, and will do so well before that 30-year period elapses. In this instance, it matters a lot more how much they “owed” in the first place and what they pay back correlates closely with that debt. So “the difference for that student taking a £9k course rather than a £6k course is that they pay about 50% more, because, funnily enough,they owed roughly 50% more”. The upshot? Cutting fees “has no effect on the lowest-earning graduates, but represents a potentially huge saving for the most affluent of graduates”!
Still, regardless of the cost of loans the most important short-term thing for students is to make sure they end up with very little other debt. That means budgeting; avoiding credit cards; and getting a good free overdraft if possible. The first stops? Go to Direct.gov.uk to figure out what loans and grants you are entitled to and Ucas.co.uk to learn about budgeting and money management. by Merryn Somerset Webb