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Student Loan Writes Off Approach 45% Of Value

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http://www.theguardian.com/education/2014/mar/21/student-fees-policy-costing-more

its not like anyone predicted this...

but then forcing people to borrow money in the hope of having a middle class life and then removing all the benefit by taxation/ interest payments seems to have been the govts policy for the last 20 years or so...

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The mass expansion of university education has worked in its way though hasn't it?

  • Youth unemployment and the bill for it is massively down as people have been convinced that borrowing to support themselves between the ages of 18-21 is the thing to do.
  • They have also been convinced to borrow to fund a mass expansion of academic jobs and administrator salaries.

Why do you need to bring back national service to deal with unemployed youth when they will boorow to pay their own beenfit and employ lots of lecturers.

Economically it's a winner.

The losers are the students:

  • Those who were bright enough to go before now find themselves with a £60k debt at graduation rather than a £1k overdraft.
  • Those who weren't bright enough to go before find themsleves with a degree that makes them no more employable than they were at 18 plus they have a £60k debt

Still, as since Blair took office and ably continued by Cameron / Osborne making life increasingly hard and debt-ridden for young adults seems to be standard government policy.

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It's going to be very interesting seeing what happens to all this student debt when the new graduates hit the job market and there's a recession, they lose their job and stop paying.

I'm better what ever model has been used to work out the costs it will be out by at least probably 2x current predicted losses if not more. But hey that isn't the problem now so it doesn't matter.

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The mass expansion of university education has worked in its way though hasn't it?

  • Youth unemployment and the bill for it is massively down as people have been convinced that borrowing to support themselves between the ages of 18-21 is the thing to do.

  • They have also been convinced to borrow to fund a mass expansion of academic jobs and administrator salaries.

Why do you need to bring back national service to deal with unemployed youth when they will boorow to pay their own beenfit and employ lots of lecturers.

Economically it's a winner.

The losers are the students:

  • Those who were bright enough to go before now find themselves with a £60k debt at graduation rather than a £1k overdraft.

  • Those who weren't bright enough to go before find themsleves with a degree that makes them no more employable than they were at 18 plus they have a £60k debt

Still, as since Blair took office and ably continued by Cameron / Osborne making life increasingly hard and debt-ridden for young adults seems to be standard government policy.

Reading the comments underneath, it sounds like the standard solution for the first category (those able enough to go through the old system) is to emigrate as the student loans company are totally inept at chasing people overseas. Hence we lose intelligent motivated people as well as the money we spent on their education.

The point of the article seems to be that the cost of the new system will soon be higher than the old system. I expect the current govt thought this point would be beyond their tenure and so "who cares". -They were wrong.

Difficult to see where it goes from here, but universities like mine (russel group) could probably survive in some form as independent financial organisations by focussing on overseas students, others are less fortunate. I can only see large scale reform and job losses coming, but then i have been saying that house prices must drop too for 10+years so what do i know

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http://www.theguardian.com/education/2014/mar/21/student-fees-policy-costing-more

its not like anyone predicted this...

but then forcing people to borrow money in the hope of having a middle class life and then removing all the benefit by taxation/ interest payments seems to have been the govts policy for the last 20 years or so...

Exactly.

The numbers barely work out for those that do get a decent job, nevermind once interest was added etc. The idea that people will take the addition of 9% to their marginal tax rate with no detrimental effect on their motivation/aspiration is pretty daft imo.

eg debts £27k, salary £40k. Repayments of approx. £1,700 per annum, 16 years to repay (with no interest added). Given debt accumulates at RPI+3% during the course and for most of a year afterwards, it is quite possible the £27k is actually more like £32k, so 19 years with no further interest taken account.

But the £32k rises at 1.5% (currently, linked to lower of RPI or base rate +1.5% as I understand).

So even on a paltry1.5% on £32k = £480 interest, so right from the start it takes a salary of over £26k to stop the balance going up. How many grads walk into national-average wage jobs? Very few. As/when rates rise a bit too it will become apparent that balances are rising much quicker than people can repay.

I predict massive write-offs in future, much greater than the current mooted figures.

Edited by The Knimbies who say no

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This is just more money printing. Completely obvious and undisguised.

Agree. Most of it will simply be written off or the debt QEd by BoE down the line. Quite right too.

You'd have to be pretty stupid (or wealthy) to even contemplate 'paying it back'.

Not sure why people refer to David Willetts as 2 brains. Always seems to me he's more like brain dead. Amazing what being marginally smarter than your Eton educated inbreds can do for your career.

The universities minister, David Willetts, speaking in response to a parliamentary question from the shadow education minister, Liam Byrne, confirmed that the write-off figure – the resource accounting and budgeting (RAB) charge – is rapidly approaching the 48.6% mark. This is the threshold at which experts calculate that the government will lose more money than it would have saved by keeping the old £3,000 tuition fee system.
Edited by R K

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Why did they ever bother..

I think one of the things people 'forget' about this is that before we had tuition fees/loans/whatever, it was the case that on average, graduates paid more tax than non-graduates - and paid in proportion to the 'value' they got from their degree. As long as the net extra tax from graduates exceeded the cost of teaching them then the whole system paid for itself. And, crucially, the government, being the biggest 'purchaser' of tuition, could restrict fees and/or stop overspending.

Under the new, highly complicated system.. we still see higher earners paying more, just explicitly. However, since a large chunk will be effectively written off (I'm assuming this really means 'losses taken by taxpayer' if we sell the loans on), there will still be a large element of general taxation funding.

BUT - very high earners or the well off can now end up paying less towards it all than previously, by pre-paying fees.

And The interest rate on the 'loans' is much higher than government debt.

And there is no large buyer, so fees can inflate up to limits (until those limits are dropped)

And the whole process of lending, selling off the debt and taking repayments involves multiple opportunities for bureaucracy and profit that never existed before.

So the ultimate result is the a small amount of debt is shifted off the government balance sheet, overall costs are increased and the burden of paying for it all drops a rung down the income ladder.

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The wife has just landed a new job after returning from the emerald Isles. She is going to be earning just over 16k qhich is now under the repayment threshold whihc is now increasing at the rate of CPI.

If wage increases remain below CPI then eventually (long long time) I will not have to repay wither.

The CPI link to the repayment threshold is a 'new' thing (2012) that has been tinkered with. Like everything the government can't neither plan in advance or resist the temptation to tinker.

My advice to graduates is to keep the day job and do something else on the side.

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I bet Clegg is really glad he allowed himself to be manipulated into destroying his own electoral chances and those of his party for this.

Huge student loan debt also discourages earning over a certain level, it also encourages people to move abroad. ;)

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Huge student loan debt also discourages earning over a certain level, it also encourages people to move abroad. ;)

Missed that out of the rant..

But it's right.. if you pay for higher education out of general taxation then the losses from graduates going abroad are balanced by immigrant graduates, as long as the numbers roughly match. And there is no particular incentive to emigrate.

But if everyone has student loans that are tied to a given country then emigration is incentivised, and immigrant graduates don't pay.

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Why did they ever bother..

I think one of the things people 'forget' about this is that before we had tuition fees/loans/whatever, it was the case that on average, graduates paid more tax than non-graduates - and paid in proportion to the 'value' they got from their degree. As long as the net extra tax from graduates exceeded the cost of teaching them then the whole system paid for itself. And, crucially, the government, being the biggest 'purchaser' of tuition, could restrict fees and/or stop overspending.

The difference was back then 20-30% of school leavers went university. Now its nearer 60%. More money goes into FE as did back then, but it went further as they didnt force people whose best interests are served by bypassing university. I foolishly went to university because it was 'expected' of me and am still trying to get a decent accounting job. I took a gap year before, worked at a firm who offered to train me up at 18. I could have saved £15k of debt, 3 years off piss ups and earnt money in that time. What a waste. Going to uni was my biggest mistake, no doubt.

Degrees, as with everything else in oversupply, see their value driven down. The market has sent signals. Reduced graduate wages, higher graduate unemployment, graduates in non-graduate level jobs, and the govt refuses to listen. If they did, the pigs at the BBC would accuse them of denying the young FE. The BBC and the educational rip off merchants are good friends.

Of course, they know this. The one and only reason we have such a bloated universities structure is because it makes unemployment look a couple million lower.

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Why did they ever bother..

I think one of the things people 'forget' about this is that before we had tuition fees/loans/whatever, it was the case that on average, graduates paid more tax than non-graduates - and paid in proportion to the 'value' they got from their degree. As long as the net extra tax from graduates exceeded the cost of teaching them then the whole system paid for itself. And, crucially, the government, being the biggest 'purchaser' of tuition, could restrict fees and/or stop overspending.

Under the new, highly complicated system.. we still see higher earners paying more, just explicitly. However, since a large chunk will be effectively written off (I'm assuming this really means 'losses taken by taxpayer' if we sell the loans on), there will still be a large element of general taxation funding.

BUT - very high earners or the well off can now end up paying less towards it all than previously, by pre-paying fees.

And The interest rate on the 'loans' is much higher than government debt.

And there is no large buyer, so fees can inflate up to limits (until those limits are dropped)

And the whole process of lending, selling off the debt and taking repayments involves multiple opportunities for bureaucracy and profit that never existed before.

So the ultimate result is the a small amount of debt is shifted off the government balance sheet, overall costs are increased and the burden of paying for it all drops a rung down the income ladder.

That's simply not true. £9000 > £0 is an indisputable fact.

So much of the criticism of tuition fees sounds like nothing more than the well-off, entitled classes throwing their toys out of the pram because the state is no longer providing them with subsidies. Who cares if 45% of student loans are written off. The wealthy in society are still paying the remaining 55% which they previously received as a handout. The system isn't perfect, but it's still better than the state providing an open cheque book with no individual contribution expected.

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That's simply not true. £9000 > £0 is an indisputable fact.

So much of the criticism of tuition fees sounds like nothing more than the well-off, entitled classes throwing their toys out of the pram because the state is no longer providing them with subsidies. Who cares if 45% of student loans are written off. The wealthy in society are still paying the remaining 55% which they previously received as a handout. The system isn't perfect, but it's still better than the state providing an open cheque book with no individual contribution expected.

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University entrance was on merit rather than on parents' wealth back in the 70s and 80s, and if your parents were wealthy then you didn't get an income grant. The "handout" was free tuition because it was believed that educating your most academic children beyond the age of 18 was something in which it was worth the country investing.

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That's simply not true. £9000 > £0 is an indisputable fact.

So much of the criticism of tuition fees sounds like nothing more than the well-off, entitled classes throwing their toys out of the pram because the state is no longer providing them with subsidies. Who cares if 45% of student loans are written off. The wealthy in society are still paying the remaining 55% which they previously received as a handout. The system isn't perfect, but it's still better than the state providing an open cheque book with no individual contribution expected.

The state is funded through taxation.

Roughly speaking, the amount of tax you pay is proportional to the amount you earn. So tuition fees are/were repaid through higher earnings and therefore higher taxes.

The theory of individual tuition fees breaks this, since if you are rich to start with or an extremely high earner you can effectively 'buy yourself out' by paying the tuition fees up front or very quickly. So a person in that bracket is actually paying less than before.

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The state is funded through taxation.

Roughly speaking, the amount of tax you pay is proportional to the amount you earn. So tuition fees are/were repaid through higher earnings and therefore higher taxes.

The theory of individual tuition fees breaks this, since if you are rich to start with or an extremely high earner you can effectively 'buy yourself out' by paying the tuition fees up front or very quickly. So a person in that bracket is actually paying less than before.

I'd disagree with that, it's not like the Government has reduced income tax by say 0.5% for everyone to represent University now being part funded by the individuals rather than wholly the government.

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Huge student loan debt also discourages earning over a certain level, it also encourages people to move abroad. ;)

If you become a contractor (non-PAYE) then pay company divi's to a non-student spouse, would that be enough to avoid triggering repayments?

The current <30yr old generation is being totally shafted.

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I'd disagree with that, it's not like the Government has reduced income tax by say 0.5% for everyone to represent University now being part funded by the individuals rather than wholly the government.

Actually, the numbers just about match up to the 50%->45% tax cut..

But it's more a case of the government going to extreme lengths to avoid tax hikes for the rich.

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Huge student loan debt also discourages earning over a certain level, it also encourages people to move abroad. ;)

The problem where can people go to? USA and Australia have strict immigration controls and most of the EU is worse of than us.

If I were a new graduate I would be tempted by Ireland with cheap housing.

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My link

UP to 65 jobs could be axed at Glyndwr University. A consultation is under way at the university in Wrexham which could see the jobs go as part of an operational and academic reorganisation. The consultation period ends on April 16. The proposals could see 25 academic staff, five academic support staff and 35 operational staff lose their jobs and would affect the university’s main Wrexham campus. Campuses in Northop, London or St Asaph are not included in the proposals.

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The current loan system is a disgrace. People that actually do useful degrees which develop skills that lead to decent paying jobs, are forced to subsidise people doing crappy humanities degrees at non-Russell Groups. Student loan debt shouldnt ever be written off, it should be 9% of your salary over £21k (or whatever it is) until its all paid back, full stop. Why should people who do sensible degrees be forced to pay for them, while those who do English lit/etc basically get the degree for free due to the write off?

The other related problem is the fact that a lot of women drop out of the workforce, or go part time, once they are in their 30s and have children. So they have basically taken a place at university which could have went to someone who would actually use the skills they have learned for the good of the economy, and they dont even have to pay for it to boot. The whole student loan system is now an enormous subsidy from the productive to the nonproductive. What makes it even more annoying is that its the nonproductive who are the ones whining about it the most. The protests over the increased student fees were mainly driven by those in the humanities/sociology/etc, who are the ones basically leeching free degrees at society's expense anyway.

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The state is funded through taxation.

Roughly speaking, the amount of tax you pay is proportional to the amount you earn. So tuition fees are/were repaid through higher earnings and therefore higher taxes.

The theory of individual tuition fees breaks this, since if you are rich to start with or an extremely high earner you can effectively 'buy yourself out' by paying the tuition fees up front or very quickly. So a person in that bracket is actually paying less than before.

No, this is nonsense. High earners are still paying the same tax as before, its not like they are contributing less. Its just that they now need to pay an extra £27k on top of all the tax they were paying anyway, in order to subsidise people studying Art History at Plymouth unviersity or whatever.

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It is true that universities have never been 'free' we have all been paying for them through taxation, and the successful high earners have paid the lions share of it.

What doesnt seem to be getting any attention is the costs, for a class of 20, those £9000 fees add up to £ 180,000 per year

The lecturer probably gets paid around £30K, lets say other costs (building, heating etc) are another £30K so where did the other £ 120,000 go?

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It is true that universities have never been 'free' we have all been paying for them through taxation, and the successful high earners have paid the lions share of it.

What doesnt seem to be getting any attention is the costs, for a class of 20, those £9000 fees add up to £ 180,000 per year

The lecturer probably gets paid around £30K, lets say other costs (building, heating etc) are another £30K so where did the other £ 120,000 go?

They've already said they're forecasting to write off c50% of the collected fees, so that only leaves 30k for pension liabilities for most staff and the VC's ample salary and final salary pension.

Mind you there's probably a bit more in the pot to pay for the VC (because theyre so worth it) as the lecturer's pay could potentially be split over 5/6 classes of £180k, and most uni's have a fund-raising department these days that tap up anyone they can.

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