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Explaining the evolution of the student loans system

Degrees are cheaper than you think because of the nature of the student loans

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Image Credit: Arian Kriesch

As the deadline for loan applications for student finance fast approaches, this article will look into the merits and flaws of our current system.

As it stands, students can expect the full tuition loan of £9,250 and a potential maintenance loan between £4,000 and £11,000 (depending on parents’ income) from the state. These loans accrue interest as soon as they are sent at a rate of 3 per cent on top of Retail Price Index (RPI), currently this means 6.3 per cent. RPI is a crude measure of inflation (the gradual rise in prices), which is far higher than the widely adopted Consumer Price Index (CPI) which stands at 2.1 per cent (instead of 3.3 per cent).

The difference between them is that RPI includes the rise in housing costs such as mortgage rates and council tax, two factors that very rarely directly influence student lives as we are unlikely to take out a mortgage and are exempt from council tax. Nonetheless, students take on this interest for their full time at university, a rate only seen after graduation if students earn above £46,305.

The threshold for beginning repayment (and added interest on top of RPI) is £25,725 which is 9 per cent on every extra pound earnt above this limit (before tax). However, a time limit of 30 years exists that removes the loan and outstanding fees, this begins on fist repayment. For example, a first year PPE student might expect to earn in the very rough region of £22,000 after graduation (according to estimates for Philosophy and Politics students), and suggesting a wage growth of 2 per cent they would start paying the debt back around eight years after starting work.

Even then it would be a meagre £45.48 paid back the first year of a debt (suggesting tuition fee and minimum maintenance loan with interest for three years) worth a staggering £57,691.73. In actual fact many will never pay their student debt back fully, if you are curious, there are many online calculators, all of them very rough estimates based on future income.

David Bailey, head of the public sector division for the Office of National Statistics, went on to confirm this when he said, “The design of the [loans] system means much of this student loan debt will never be repaid, and is therefore written off by the government”.

The UK deficit accounting has recently been changed so that these loans which are expected to lapse without repayment will be underwritten in the financial year they were issued rather than when the lapse effectively occurs. This will mean governments are more aware of the direct and immediate financial costs to make the budget more representative instead of delaying the costs.

However, is it worth all the trouble since having tripled the tuition fee in 2011, to then absorb most of the costs anyway through this new system? The tuition fees and respective loans also do not differ for most courses. Worries have been raised over this considering an English Literature student for example, has far fewer contact hours than a Mathematics student and yet both pay the same fee, on top of which any literature is often expected to be purchased by the student.

Many fear that just the expected astronomical debt is enough to dissuade some to take on an undergraduate degree at all. But if this article represents anything it is to say that though the system is flawed it still does allow cheap education despite the ridiculously advertised price tag.

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1 Comment

alia12 parker Posted on Monday 18 Jan 2021

Thanx you for providing the best things with us. I have learned so many things fro here.


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