## Student Moans Loans

14 Dec

The old (before 2011) system of students loans is being replaced. This caused many students to complain and go on marches and generally make themselves look foolish and immature by acting without thinking. I may not be affected by the new changes but I was a student and so I’m going to give my opinions on the new system, but first I’ll give a brief outline of the old and new systems.

The old system, the one in place while I was doing my degree, had the tuition fees at £3,000 a year. So by the time I finished my Masters I had a debt of around £12,000 (not including the debt from maintenance loans). Repayment of this doesn’t commence until I’m earning over £15,000 a year, and then consists of 9% of what I earn over the £15,000 limit. Interest is added after the first repayment and tracks inflation.

The new system has seen the tuition fees rise to a maximum of £9,000 a year, which would have left me with a total debt of £36,000 (again, not including maintenance loans). Unlike the old system interest is constantly added to the loan. For the duration of your studies it is inflation+3%, it then drops back down to the base rate of inflation+0% when you finish, and then increases back up to inflation+3% when you earn between £21,000 and £41,000. You start paying back when you are earning above £21,000 this time, but like before you pay back 9% of everything above this limit. We can work out the faction of your wage you’d pay back each year under each system, y, as a function of how much you’re earning, x, using the following equations;

$\mbox{Old Scheme} \> \> \> y = \frac{0.09(x-\pounds 15,000)}{x}$

$\mbox{New Scheme} \> \> \> y = \frac{0.09(x-\pounds 21,000)}{x}$

The plot of these can be seen in the graph below

As you can see from the graph, the new system always has you paying less of your income towards your loan. It is always more affordable. The trade off that allows this is that it takes longer to pay off as it’s a greater sum of money, but each month the new system has you paying back less than you would with the old system, meaning you keep more of your wage for yourself.

## Too Poor to Learn

I have heard a number of people make the claim that it will be too expensive under the new scheme for people to go to university, but I feel that this is untrue. Before I went to university I couldn’t afford it. Neither could my parents. Did that stop me? No, of course not. The system is specifically designed so that people that don’t have enough money can go. People seem to be forgetting that the whole point of a loan is to allow you access to something you can’t afford at the moment, under the agreement that you pay for it when you can. Done properly, going to university should increase both the chances of getting a job and the amount you’ll be payed. It should end up making itself affordable. And if it doesn’t then you don’t have to pay of the loan so all you’ve lost is 3 years.

## Think Twice

Hopefully one side effect of the increase in fees is that it will deter people from going to university for the sake of it and picking courses that could be seen as a waste of time (I’m looking at you Golf Management). The inclusion of interest on the loan during your studies will also hopefully work as an incentive for people not to fall back on resits or other methods of prolonging their degree.

I would have been happy to fund my degree. While I am all for more people continuing education; at this level it is a choice, and one that doesn’t have to be covered by the taxpayer. How much thought have you given to the amount of tax you pay, income, VAT or other, towards the 10’s of thousands of students who dropout? By shifting the burden of payment maybe the burden of responsibility will follow? (Typing that made me feel very old and grumpy)

## You Can’t Argue with Numbers

On a month by month basis the new scheme has you paying less of your salary. If you thought you could afford the old system then under the new system you will have more spare money each month. Yes you have more money to pay off, but surely it better you pay for the service yourself rather than making everyone else pay the majority for you? If you’re not earning above £21,000 a year (a relatively huge salary after living off a maintenance loan) you don’t pay, and is the debt isn’t payed off in 30 years it’s canceled. My PhD stipend is around £13,000 a year (tax free), and me and my girlfriend budgeted we could live comfortably on it, even with a car and without sacrificing things like PS3 games and iPhones. By the time I’m paying back my loan I’ll be earning at least £2000 a year extra so I’ll barely notice the repayments, if I was lucky enough to be under the new scheme I’d have £8,000 a year extra, so I’d notice the payments even less.

When you look at the numbers its hard to argue that the system is worse or even unaffordable.

Posted by on December 14, 2011 in Blog

### 2 responses to “Student Moans Loans”

1. January 15, 2012 at 3:42 pm

3 years out of my life isn’t a casual thing to lose!
Anyway, whilst beyond a doubt you’ve proved that on a week by week basis you’d have a larger % of your earnings, the total difference in amount owed by the end of the repayment schedule will surely be astronomical. This no doubt will then be written off meaning the government doesn’t reclaim it’s losses in lending you the money in the first place? Making students an even larger burden on the taxpayer than they were in the old system.

• January 15, 2012 at 7:04 pm

I guess the amount of money the government will make depends on the distributions of graduate earnings. If the majority are earning above the threshold then the interest being paid may cover the loans that won’t be started or finished. Also, as I briefly mentioned in the post, the higher loan amount may put people off dropping out and so reduce that loss.

I know this may not be a good argument but I feel that the government will have probably set it up to minimise their losses, but again this is speculation.

I’ll be really interested to see the figure in a few years after the system has had a chance to settle down to see what actually happens with the money and attendance. If it turns out it is a bad scheme and fucks everything up then I will make sure I issue an “I was wrong” blog post.