Why cutting tuition fees bizarrely risks hurting not helping most students Watch

TheEnchantress
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https://blog.moneysavingexpert.com/2...666.1515084173

What do you think?
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Napp
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I think i'm a bit to lazy to click on the link, can you post it here instead ?
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JennLousie
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Here's the full article:
Spoiler:
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Two facts you need to understand to get this:

  1. What you repay each year solely depends on what you earn. All those who started university since 2012, including current students, repay 9% of everything earned above an annual salary threshold. That threshold is currently £21,000 a year, so for example, earn £30,000, and you’d repay £810 a year.

    I’m delighted to say (as I campaigned hard for it), that threshold rises to £25,000 this April, dropping the repayments for all, eg, to £450 a year for someone earning £30,000. Each year after that it is set to rise in line with average earnings.
  2. What you borrow and the interest doesn’t change this. Whether you owe £5,000, £50,000 or £500,000, if you earn £30,000 you still repay £810 a year (£450 a year from April).

    The only impact borrowing more (or higher interest) has is whether or not you will clear ALL the loan and interest within the 30 years before it wipes. Currently it’s predicted only 17%, the highest earning graduates, will clear it all. Everyone else will simply repay 9% of everything above the threshold for 30 years regardless – which is why increasing the repayment threshold is a big gain for most.

    For more on how the system works, see my full 20+ Student Loan Mythbusters guide.


Who does reducing tuition fees to £6,000 help?

It helps three main groups.
  1. Those with rich enough parents that they don’t take loans in the first place.
  2. The top 17% of earners who will clear in full will repay substantially less.
  3. The next highest 10-20% of graduate earners (that’s very difficult to estimate but I suspect it is of that order) who currently don’t clear in full who would with lower fees.

So let’s say the main gainers from this are graduates on starting salaries of £35,000+, who take no work breaks over 30 years, and get above-inflation pay rises each year (see this for yourself using the Student Loan True Cost Calculator).
And so, to help ONLY these high earners we have to take money away from universities, or spend from general taxation.

We’re tweaking the wrong nipples

If we’re going to tweak the current system’s nipples (rather than replace or redesign it totally), cutting tuition fees and above-inflation interest are the wrong nipples to tweak. Both only benefit higher earning graduates.
Of course with unlimited funds they’re good to do, as both are psychological barriers. I especially hate high interest rates on principle, even though in practice they’re less of an issue.
Yet now we’ve upped the repayment threshold, my number one practical priority would be to look at the system of maintenance loans. Many from lower and mid-earning backgrounds find university living costs cripplingly unaffordable.
Part of the problem is the current disgracefully hidden system of parental contributions (ie, parents are expected to contribute £1,000s but are never told it). Living loans need to increase, and options like two-year degrees be explored.
For full info on this see my The hidden parental contribution requirement blog and for those with more than one child my FT piece The UK’s hidden one-child-per family university policy.
And if we’re sticking with this system, let’s start to be honest that it is far closer to a graduate tax than a loan. I’d call it a graduate contribution system, and rework it to make that name fit.
Using the language of loans and debt is especially off-putting to those from non-traditional university backgrounds who are most risk-averse – and causes others to make perverse decisions such as borrowing elsewhere to part-clear a loan they’d never have to repay. Never mind the fact that it has inured a generation to borrowing, with dangerous knock-on effects.

For more on this, see my original 2012 blog
It’s time to rename student loans and the results of that campaign, that the Govt finally agrees it’s time to change the name.

What about the interest rate?

I’ve not included much here on the 6.1% interest rate, nor have I answered the common question “Who pays if 83% of people don’t?” as I’ve written about those in detail in my Student loans 6.1% interest, panic or repay? guide. You can also watch my recent Martin Lewis Money Show student loan special where I explain it in detail.

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ByEeek
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I don't have a problem with tuition fees or the interest rates. It is basically a 9% tax on earnings over £25k regardless of anything else. Most will never pay it off and have the loans wiped out after 30 years. That is my strategy.
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TheEnchantress
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(Original post by Napp)
I think i'm a bit to lazy to click on the link, can you post it here instead ?
Poster below has
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TheEnchantress
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(Original post by JennLousie)
Here's the full article:
Spoiler:
Show

Two facts you need to understand to get this:

  1. What you repay each year solely depends on what you earn. All those who started university since 2012, including current students, repay 9% of everything earned above an annual salary threshold. That threshold is currently £21,000 a year, so for example, earn £30,000, and you’d repay £810 a year.

    I’m delighted to say (as I campaigned hard for it), that threshold rises to £25,000 this April, dropping the repayments for all, eg, to £450 a year for someone earning £30,000. Each year after that it is set to rise in line with average earnings.
  2. What you borrow and the interest doesn’t change this. Whether you owe £5,000, £50,000 or £500,000, if you earn £30,000 you still repay £810 a year (£450 a year from April).

    The only impact borrowing more (or higher interest) has is whether or not you will clear ALL the loan and interest within the 30 years before it wipes. Currently it’s predicted only 17%, the highest earning graduates, will clear it all. Everyone else will simply repay 9% of everything above the threshold for 30 years regardless – which is why increasing the repayment threshold is a big gain for most.

    For more on how the system works, see my full 20+ Student Loan Mythbusters guide.


Who does reducing tuition fees to £6,000 help?

It helps three main groups.
  1. Those with rich enough parents that they don’t take loans in the first place.
  2. The top 17% of earners who will clear in full will repay substantially less.
  3. The next highest 10-20% of graduate earners (that’s very difficult to estimate but I suspect it is of that order) who currently don’t clear in full who would with lower fees.

So let’s say the main gainers from this are graduates on starting salaries of £35,000+, who take no work breaks over 30 years, and get above-inflation pay rises each year (see this for yourself using the Student Loan True Cost Calculator).
And so, to help ONLY these high earners we have to take money away from universities, or spend from general taxation.

We’re tweaking the wrong nipples

If we’re going to tweak the current system’s nipples (rather than replace or redesign it totally), cutting tuition fees and above-inflation interest are the wrong nipples to tweak. Both only benefit higher earning graduates.
Of course with unlimited funds they’re good to do, as both are psychological barriers. I especially hate high interest rates on principle, even though in practice they’re less of an issue.
Yet now we’ve upped the repayment threshold, my number one practical priority would be to look at the system of maintenance loans. Many from lower and mid-earning backgrounds find university living costs cripplingly unaffordable.
Part of the problem is the current disgracefully hidden system of parental contributions (ie, parents are expected to contribute £1,000s but are never told it). Living loans need to increase, and options like two-year degrees be explored.
For full info on this see my The hidden parental contribution requirement blog and for those with more than one child my FT piece The UK’s hidden one-child-per family university policy.
And if we’re sticking with this system, let’s start to be honest that it is far closer to a graduate tax than a loan. I’d call it a graduate contribution system, and rework it to make that name fit.
Using the language of loans and debt is especially off-putting to those from non-traditional university backgrounds who are most risk-averse – and causes others to make perverse decisions such as borrowing elsewhere to part-clear a loan they’d never have to repay. Never mind the fact that it has inured a generation to borrowing, with dangerous knock-on effects.

For more on this, see my original 2012 blog It’s time to rename student loans and the results of that campaign, that the Govt finally agrees it’s time to change the name.

What about the interest rate?

I’ve not included much here on the 6.1% interest rate, nor have I answered the common question “Who pays if 83% of people don’t?” as I’ve written about those in detail in my Student loans 6.1% interest, panic or repay? guide. You can also watch my recent Martin Lewis Money Show student loan special where I explain it in detail.


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TheEnchantress
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(Original post by ByEeek)
I don't have a problem with tuition fees or the interest rates. It is basically a 9% tax on earnings over £25k regardless of anything else. Most will never pay it off and have the loans wiped out after 30 years. That is my strategy.
That is my thinking too now to be fair before I thought you pay 9% on all your earnings but now I realised that it's not :laugh: so now don't really care
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ax12
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(Original post by ByEeek)
I don't have a problem with tuition fees or the interest rates. It is basically a 9% tax on earnings over £25k regardless of anything else. Most will never pay it off and have the loans wiped out after 30 years. That is my strategy.
Same - after 6 years in uni I don't want to know how much I owe them, and I'm 100% certain I will never pay it back. If you think of it as a tax for going to uni, it's a bit nicer to think about...
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Science99999
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Won't affect me, I'll pay my fees in full; my family invested inheritance money into education and real estate.
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ax12
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(Original post by Science99999)
Won't affect me, I'll pay my fees in fund; my family invested inheritance money into education and real estate.
That’s literally the point that the article is making
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TheEnchantress
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(Original post by ax12)
That’s literally the point that the article is making
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BusMan21
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The biggest issue is when terms such as debt, interest etc are used - it scares, it shocks and it provokes the majority to draw parallels from a traditional loan or mortgage when it’s not dealt with the same way, the optics looks awful when in reality it makes perfect sense.

The mainstream popular sounding option of scrapping fees sounds great, but in reality, it benefits only the richest.
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noey123
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I do think courses like nursing should still be free tho
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TimmonaPortella
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(Original post by ByEeek)
I don't have a problem with tuition fees or the interest rates. It is basically a 9% tax on earnings over £25k regardless of anything else. Most will never pay it off and have the loans wiped out after 30 years. That is my strategy.
Your 'strategy' is to make sure you never earn enough money to pay off your debts?

Pretty much sums up the perversity of the present tuition fees system tbqh.
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JennLousie
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(Original post by TimmonaPortella)
Your 'strategy' is to make sure you never earn enough money to pay off your debts?

Pretty much sums up the perversity of the present tuition fees system tbqh.
My friend has applied for film studies and creative writing and when I asked why (she originally wanted to astrophysics but missed the AS grades and predictions) she just said "well I'm never going to earn over £21,000 anyway so I may as well just do something I enjoy"
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generallee
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(Original post by ByEeek)
I don't have a problem with tuition fees or the interest rates. It is basically a 9% tax on earnings over £25k regardless of anything else. Most will never pay it off and have the loans wiped out after 30 years. That is my strategy.
So you are going to get someone else to pay your debts?

The ideology of the political left, in a nutshell.

I'll give you one thing, you practice what you preach.
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username3672344
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(Original post by generallee)
So you are going to get someone else to pay your debts?

The ideology of the political left, in a nutshell.

I'll give you one thing, you practice what you preach.
How much income tax do you pay per year? Go on, given that you're rather judgemental about others using public services...
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username3672344
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(Original post by TimmonaPortella)
Your 'strategy' is to make sure you never earn enough money to pay off your debts?

Pretty much sums up the perversity of the present tuition fees system tbqh.
Well the current system is pretty much a graduate tax in all but name really. The vast majority of graduates won't pay it all off and even the ones who do won't do it with much of the 30 year period to spare.

There is the option of making voluntary payments if you're earning a particularly high amount but the general advice is that people would be better off spending additional money elsewhere.

Also worth mentioning that people who do pay it off will paying upwards of £100k for a course that cost £27k which is pretty ridiculous in and of itself but meh.
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TimmonaPortella
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(Original post by DeBruyne18)
Well the current system is pretty much a graduate tax in all but name really. The vast majority of graduates won't pay it all off and even the ones who do won't do it with much of the 30 year period to spare.

There is the option of making voluntary payments if you're earning a particularly high amount but the general advice is that people would be better off spending additional money elsewhere.

Also worth mentioning that people who do pay it off will paying upwards of £100k for a course that cost £27k which is pretty ridiculous in and of itself but meh.
I'm sorry but I can't approach that with a 'meh' attitude. The result of this is that the people who actually put their degrees to profitable use end up paying full whack for their education, at a price that you clearly consider too high. Meanwhile, those who squandered their education pay little to nothing. They are rewarded, for some reason, for their inability to turn their education into monetary gain. This is the perversity I was talking about above.

That it is veering too close to a graduate tax system is the problem. The first step the government should take in this regard should be very substantially to strengthen the repayment terms applicable to student loans. If you choose to take a degree, the presumption should be that you pay your bills afterwards.
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jsk1
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(Original post by generallee)
So you are going to get someone else to pay your debts?

The ideology of the political left, in a nutshell.

I'll give you one thing, you practice what you preach.
If your university degree does nothing else for you, learn how to spell 'practise' as a verb!
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