Our entire system of student loans is flawed, misleading and potentially benefitting better-off students. You don’t need to take my word for it; everywhere you look there is evidence that the system is causing problems.
Last month, the Intergenerational Foundation published research that suggested around 10% of students were not taking out loans at all, meaning they avoided the interest rates of 6.3% loaded onto other students.
It’s hard to consider a system fair when wealthier students are able to avoid paying more, while lower-income students have no such option.
"Wealthier families have realised that they can give their children a get-out-of-jail-free-card by helping them to escape sky-high interest rates and a 30-year loan that could be sold off to the private sector in the future," said report author Rakib Ehsan.
Undergraduates are charged interest as soon as they begin university, meaning that for some they owe around £6,000 in interest alone by the time they graduate.
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But that’s not the only issue with student loans. In the last month of 2018, the Office for National Statistics declared that student loans should be treated in part as Government expenditure, to reflect the fact that many will never be repaid in full.
That decision meant an extra £12 billion had to be acknowledged in the deficit, highlighting that student loans are really not loans for many people – they are a tax paid for the first 30 years of employment.
But the way we talk about that tax – as a loan – disguises the truth. Not only does it mean that wealthier kids can escape it if their parents are happy to help. It also risks putting off bright kids who deserve the chance of a degree as much as anyone else.
Very capable but debt averse
My main concern is that student ‘loans’ frighten off kids who deserve the chance to study at university just as much.
Last year I spent a week with a particularly bright teenager who came to me for work experience.
I’m not best placed for work experience since I often work from my kitchen table with my dog asleep on my feet, but I went out of my way to show her exactly what life as a freelance journalist was like.
She was really very clever. Bright and sparky and interested and capable; by the end of the week she was writing her own articles and – even better – persuading online editors to publish them.
I took her to visit a broadcast newsroom I work in and she was full of questions for everyone we met. But then one of the questions she asked was: “Do you need a degree to have a chance to work here?”
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The answer from everyone she met was: these days yes. It used to be possible to get in at the bottom making tea on Saturdays and then gain experience in the newsroom but now there are thousands of ready trained graduates fighting for every place.
Perhaps there’s a handful of apprenticeships available, but not enough to pin your entire hopes and dreams on.
Driving back from the newsroom she was uncharacteristically quiet.
I asked what she had learned and she said: “That I need a degree to stand a chance of getting in. But that’s, like, fifty grand of debt.”
What could I tell her? That it wasn’t a real debt? That it was more like a contributory system? That she shouldn’t be put off?
Could I really say: “Well sure, you’ll owe an average of more than £50,000 – more than £57,000 if you have to have to borrow more for living costs – but it’s really no big deal”?
I tried discussing the intricacies but nothing could overcome the fact that she would owe a loan and that loan would be for more money than she could imagine.
Better and fairer
A review of university funding will be published very soon and it will reportedly contain many proposals to make degree costs fairer, such as reducing the cost of some cheaper degrees and charging more for those which require more teaching and equipment.
But that could simply put poorer students off the degrees that could provide the greatest graduate incomes, such as medicine and engineering.
It would be better and fairer for all students to enjoy a subsidised education and then pay a graduate tax on their earnings for the next 30 years.
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Those who studied for degrees that will result in lower-paid jobs will, therefore, pay less in taxes.
Those who studied for degrees that allow them to command high salaries will pay more in taxes, rather than repaying their loans more quickly and escaping the debt that their lower-paid peers will spend the bulk of their careers repaying.
It will stop wealthier families from effectively shielding their young people from an extra 9% tax by paying their fees upfront, meaning a more level playing field when it comes to living affordability for those graduates.
And it will be a more truthful way of explaining the debt to undergrads – as a tax they will pay for a fixed period of time if they earn above a certain amount.
Maybe that would put off some potential students but that would be a real financial decision rather than one based on a fear of a massive debt that will hang over their heads until they are close to retirement.
A change that helps everyone
If you’re wondering about my work experience teen, by the way, she is applying for university right now, but she is still not sure if she is going.
She comes from a relatively affluent home with two professionals for parents and the chance to stay living at home while she studies. Yet that fear of debt could still be the reason she doesn’t further her education.
That could limit her lifelong earning potential.
Imagine how significant that debt fear is to less well-off students who may be the first in their families to consider a degree.
Student loans a frightening thought for many young, debt-averse people. They may normalise debt for graduates. They also, perversely, favour the better off.
It’s time to scrap them entirely for the fairer and less intimidating system of a graduate tax.
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What do you think? Should we change how young people pay for degrees? What would you do? Have your say using the comments below.