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Student Loan System Is Almost Financially Unworkable, Say Mps

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http://www.theguardian.com/education/2014/jul/22/student-loan-system-financially-unworkable-mps

The entire student loan system is nearing a point where it is financially unworkable, the group of MPs in charge of scrutinising university policy has found.

In a scathing report, the Commons business committee called for an urgent review of the system, amid predictions the government is heading towards a multibillion-pound black hole in the funding of universities.

There are growing fears among academics about the student loan system, despite unpopular changes in 2011 that involved tripling tuition fees for students. In its inquiry, the committee found that plans to lift a cap on student numbers, funded by selling the student loan book, may make the funding gap worse.

The report will be published just days after the Guardian reported that Vince Cable, the business secretary, had stalled on the sell-off of the student loan book because of fears it would not raise the amount of money predicted. Cable has decided that it will not take place before the general election, although another government could revive the plan after that point. Sources insisted this would not stop Osborne's plan to lift the cap on student numbers, saying this would be funded from elsewhere.

In their report, the MPs questioned whether the sale of the loan book would lead to a good return for the taxpayer, since the government's own analysis has now found it would raise only £2bn rather than the £12bn originally expected by the government with "an unusual and potentially costly deal made to protect the private investor".

Following an inquiry into the whole system, Adrian Bailey, chairman of the Commons committee, said: "The financial funding system for higher education is looking increasingly fragile, coming under the strain of unfunded commitments and poor debt collection. The student loans system needs urgent attention and it's vital that BIS [the Department for Business, Innovation and Skills] doesn't further undermine the viability of the system by selling off the income-contingent loan book at a knock-down price.

The loan system clearly was never designed to work but just to paper over the cracks leaving the problem for someone else to sort out.

Although great to see the principles of the free market involved in the sale of the loans, privatise the profits and socialise the losses. Capitalism at it's finest.

Allowing greater student numbers in the belief more debt larger GDP? Following the US model?

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Two myths that are currently stretched to bursting point are that houses and degrees, no matter how much you borrow to acquire them, always produce a return on the investment.

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If you are a UK national you have to supply your NI number, your student debt is not like other debts, you can't go BK. Cable needs to come clean - where the is the money going, why will a lot of it never be paid off and who effectively is coughing up way over the odds for an education that is actually paid a fraud and default bill for others as well.

Edited by onlyme2

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I took out a loan between 2000 and 2004 for foundation + 3 year degree. I earn above average, but will never repay the loan before it's written off at the age of 65. My wife's loan will also be written off since since here earnings only contribute £1/m towards the loans interest.

When we were in Ireland we didn't pay a penny.

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Most of it will be QE'd at some point.

100% guaranteed.

Furgeddaboutit.

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Two myths that are currently stretched to bursting point are that houses and degrees, no matter how much you borrow to acquire them, always produce a return on the investment.

There is a huge built in bias when it comes to the university wage premium. The brightest go to University. What would happen to the wage premium if all the clever ones had to start work at 16 and all the strugglers were sent to Uni?

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I took out a loan between 2000 and 2004 for foundation + 3 year degree. I earn above average, but will never repay the loan before it's written off at the age of 65. My wife's loan will also be written off since since here earnings only contribute £1/m towards the loans interest.

When we were in Ireland we didn't pay a penny.

I guess a lot is not being paid by those abroad, anecdotally the student loans company are totally inept at chasing it. The rest is just people in low paid jobs. Without being too sexist about it, a lot of female graduates will have got married, had kids and then gone part time and aim to be paid around £12k a year to optimise tax and benefits...

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There is a bubble in higher education costs whereby we have a bloated university system with huge levels of waste, excessive staffing levels with excessive salaries. This is compounded by the fact a significant portion is well below the required standard for the money being charged.

The scandal that these issues are not being addressed and that the government insists on throwing more money/debt at the problem.

It would be a bit like solving the housing crises by the government underwriting reckless loans against over priced assets......

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I guess a lot is not being paid by those abroad, anecdotally the student loans company are totally inept at chasing it. The rest is just people in low paid jobs. Without being too sexist about it, a lot of female graduates will have got married, had kids and then gone part time and aim to be paid around £12k a year to optimise tax and benefits...

And you don't even have to go as far as leaving the workforce altogether to have little hope of repaying the debt.

The 3*£9k fees will be more like £30k total by the time the graduate is hitting the job market as it accumulates at 6% throughout the course, and with on-target RPI it will be rising at a further £150/month come graduation. They need to walk into a job paying in excess of £35k/annum to stop the debt rising, never mind reduce it. As a requirement for a typical scenario to fund higher education, it's scarcely believable.

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Like all borrowed money.....it does what it is supposed to do at the specific time either/or pay the bills, wages and pay for something that will offer greater reward for the future....did its job......only problem being is the little issue of paying it back.....that can wait, or it may go away, may never even happen, Oh well, there is more from whence that came from......as money is no longer respected, how can you expect people to respect money ;)

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And you don't even have to go as far as leaving the workforce altogether to have little hope of repaying the debt.

The 3*£9k fees will be more like £30k total by the time the graduate is hitting the job market as it accumulates at 6% throughout the course, and with on-target RPI it will be rising at a further £150/month come graduation. They need to walk into a job paying in excess of £35k/annum to stop the debt rising, never mind reduce it. As a requirement for a typical scenario to fund higher education, it's scarcely believable.

It's much much more than more than that!!

In my case the loan was a maintenance loan since my parents refused to help me, many other students from poor backgrounds will also need to borrow thees fees.

Full-time student Loan for courses from September 2014 Living at home Up to £4,418 Living away from home, outside London Up to £5,555 Living away from home, in London Up to £7,751 Full-time student Tuition Fee Loan Full-time

Up to £9,000

Basic 3 year course for someone from a low income background (aka the 95%).

Outside London: 3 x (£5,555+£9,000) or £43,665

Inside London: 3 x (£7,751+£9,000) or £50,253

That's without any repeat years or foundation year (for those without A-Levels)

Now you have your compound interest for those earning under the repayment threshold (our our of work) for the first 3 years after graduation.

http://en.wikipedia.org/wiki/Student_loans_in_the_United_Kingdom

Interest rate of RPI plus 3%. average UK RPI for the last 5 years is about 3%, so interest rate on average = 6%

Y1 £43,665

Y2 £46,284

Y3 £49,062

Y4 £52,005

Y1 £50,253

Y2 £53,268

Y3 £56,464

Y4 £63,442

Anyone spot the problem?? You would be need to earn a lot to repay on average £250 each and every month to stop the interest accruing, then another 225pcm+ to repay the capital.

It's certainly a Ponzi scheme of massive proportions. Just like an interest only mortgage with no repayment plan in place.

Edited by Wurzel Of Highbridge

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http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678490&_dad=portal&_schema=PORTAL

From April 2014 these thresholds will raise to £16,910 a year, £1,409 a month and £325 a week.

You pay 9% of anything you earn over the threshold.

For example, if you are paid monthly and earn £1,750 before tax per month you would repay 9% of the difference between what you earn and what the threshold is:

£1,750 - £1,409 = £341

9% of £341 = £30

So your student loan repayment would be £30 a month.

Example repayment amounts Income each year before tax Monthly salary Monthly repayment Up to £16,910 £1,409 £0 £17,045 £1,420 £1 £21,000 £1750 £30 £24,000 £2000 £53 £27,000 £2250 £75 £30,000 £2500 £98

You would need to earn about £70k+ to ever repay the loan.

Average graduate salary in the UK is: between £26k and £29k http://www.graduates.co.uk/graduate-starting-salaries-in-2013-14/

  1. However, The Association of Graduate Recruiters (AGR) and HighFliers.co.uk published a report that stated the average starting salary was £29,000, while TheBigChoice.com has this a little lower at£26,500.

This means the average graduate will never repay the loan and continue to compund interest for the 30 year duration until it's written off.

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http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678490&_dad=portal&_schema=PORTAL

You would need to earn about £70k+ to ever repay the loan.

Average graduate salary in the UK is: between £26k and £29k http://www.graduates.co.uk/graduate-starting-salaries-in-2013-14/

This means the average graduate will never repay the loan and continue to compund interest for the 30 year duration until it's written off.

Except those figures (£26k - £29k) are for those with graduate jobs. As the site at the link says

"The answer to this depends on whether you want the average amount that graduates are making 6 months after University (regardless of if they have a graduate job) or if you want the average starting salary offered by graduate recruiters.

According to HECSU’s What Do Graduates Do? Report, the average salary for UK graduates in full-time employment six months after graduation range between £18,000-£24,000.

However, The Association of Graduate Recruiters (AGR) and HighFliers.co.uk published a report that stated the average starting salary was £29,000, while TheBigChoice.com has this a little lower at £26,500.

The AGR figure is the more reliable one as it looked at recruitment practices across 197 of its members in different sectors including law, engineering, retail, business, manufacturing and energy. The HighFliers.co.uk survey only looked at the leading graduate employers in the UK. After some research by GraduateFog.co.uk, it was discovered that the AGR survey and statistics were bases on large graduate recruitment schemes for big in-house names such as PWC. Most of these jobs were based in London too. As such, the “true” figures might be much lower those not applying employers in the Times Top 100 Graduate Recruiters."

So the average salary for UK graduates in full-time employment six months after graduation is between £18,000 and £24,000. And that's for those who've found a full-time job. According to HESA, in 2012-13 that was just 57.2% of all graduates.

Admittedly a proportion of the others go on to do further degrees (29.7% in the same year studying at least part-time, according to HESA), but by definition they're getting into more debt, or scraping by on part-time earnings.

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Compounding interest on a debt of £50k to £60k from the age of 20 is asking trouble.Especially since you will ahve almost no chance of repaying it if you work in an average job and have to rent a place to live.

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Agreed Wurzel, I just gave the basic 'fee only' figs as an idea as to the absurdity of the whole shebang. As you say if other expenses are added on top it's just not going to happen at all.

I think I calculated that come writeoff time some people will be owing £200k!

I've no idea how this is accounted for, balance sheet wise. An asset appreciating at 6% per annum which with each passing year becomes less and less likely to ever be realizable as it nudges towards a sharp write off.

Edited by Joan of The Tower

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Does anybody know where the student loan company gets it's money from?

I guess it comes out of thin air like the banks. However if a bank makes a loan of £10,000 the next day someone will walk into a bank and deposit £10,000 so that their assets and liabilities balance. I think the student loan is just another form of QE a way of pumping money into the economy. The £9,000 fee was probably set to the amount of QE needed nothing to do with tuition fee's.

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I graduated in 2003 after a four year degree (before tuition fees were introduced)

I graduated in 2004 after a five year course and I had to pay £1000 a year. Where did you go?

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It's madness.

Given today's conditions, I would not go to University. Or, at least, not in the UK. I heard that Holland is quite popular and the costs are but a fraction of the UK, with courses in English and good social network. A no brainer really

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How many things of importance are our young people being priced out of?.....Oh, you can have it but will have to buy it with debt, debt that has a high chance of not being paid within a working healthy lifetime........debt, and you can have it all......your future, your children, if you have them, if not others children will pay.

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Compounding interest on a debt of £50k to £60k from the age of 20 is asking trouble.Especially since you will ahve almost no chance of repaying it if you work in an average job and have to rent a place to live.

Try getting an average job when credit checks become the norm for employment...

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