University in England (Fees or Graduate Tax)

Anything to do with the traditional world of get a degree, get a job as well as its alternatives
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saving-10-years
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Location: Warwickshire, UK

University in England (Fees or Graduate Tax)

Post by saving-10-years »

England in subject because Scotland and Wales have different (kinder) systems although these too may change?

I did my degree way back when there were no fees (and got my employers to pay for later degree-level study). Times are different now and there are fees in the UK and no means tested maintenance grants. Students are expected to leave university with nearly £50K of debt (or more) for a three year degree, having borrowed money to pay for living costs and fees. This money is usually owed to Student Finance England which charges 3% over base rate from the moment the loan is taken out (and has shown it can change its terms retrospectively re. repayment). Currently if you don't pay back the loan (and interest) within 30 years then the debt is wiped out and if you are happy to earn less than £20kish pa for the whole of that period you actually pay nothing. You can overpay to pay back earlier and you don't need to borrow the maximum - although from what I have seen most students do.

If you want to do a degree (e.g. Fine Art) which has poor employment/payment prospects then this is the time to do it! Practice your art for 30 years post graduation earning low pay and amassing a catalogue of work and then when the debt is written off have a major exhibition and start making good sales. Or practice for 10 years or 20. Its a very friendly system for someone who does not wish to do a vocational degree. If you do one of those the best financial deal (if you expect to earn over minimum wage levels from year 1) is to loan less and pay off quickly.

But what if the rules change? What if there is introduction of a graduate tax? Has anyone any experience of this in their country or views on how this would operate? I assume that this would mean that the person with a degree would pay a small extra tax on all income forever. This would solve the problem of unpaid student debt for the government, and be seen as a tax on the wealthy. But for students who are currently minimising their loans and aiming to pay off quickly then unless the tax is linked to the amount of debt (and I suspect it won't be) then that student will have to pay back twice (maybe more than that). The Arts student in the example above may have to pay money some time, but choosing a vocational degree becomes less popular for others. Better to do a professional qualification and skip university.

Mulling this over as the Labour party in the UK are promising to remove tuition fees. They have not said how but if this is by bringing in a graduate tax I suspect it will be very bad news for students who have been trying to avoid the larger loans and pay down their obligations and it will make university education even less attractive for vocationally inclined students or those with an ERE bent.

chenda
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Re: University in England (Fees or Graduate Tax)

Post by chenda »

An alternative idea would be to phase out any student loans from the government and let universities set their own fees. Students would be forced to borrow at market rates, lenders would consider future earnings. Degrees could become cheaper and shorter. Many of newer universities would either disappear or reinvent themselves as higher education colleges. No more degrees in surfing studies and the like.

But as the vice-chancellors will all argue, how can we complete internationally ?

Campitor
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Re: University in England (Fees or Graduate Tax)

Post by Campitor »

Taking a loan, government or private, with the intention of not paying it back strikes me as immoral. I"m with Chenda - her ideas sound best.

saving-10-years
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Re: University in England (Fees or Graduate Tax)

Post by saving-10-years »

As I have a son at Uni at the moment I know that many students his age do not intend/expect to pay their loan back. Its a valid assumption (the FT expects that 70% of current students won't have paid off their loans by the time the write off cut-off is reached https://www.ft.com/content/55f4a6f6-3ea ... b487ebd80a). This is much worse than the previous loan arrangements when loans were a) lower in value and b) cheaper interest. There is an impression that because this is cheap money (relative to market rate borrowing) that the student should borrow all they can. This applies not just to fees but to living expenses. Until 2015 there was a small grant linked to low incomes which helped reduce the amount of debt incurred, but now there is instead a larger amount that you can borrow if your family has a low income. (Can't afford it? Borrow more you probably won't ever pay it back!)

This fact it used as a selling point when you visit universities and they tell you (as parents of would-be students) that you need not worry about student debt because its not a normal loan and so you don't need to pay back until you are doing well (by which time of course it will have racked up some interest). I suspect its the only way to loan large amounts of money at reasonable rates if you have a truely terrible record of debt repayment - credit scoring/checking does not occur.

Is it the ERE mindset that refuses to see cheap loans as a 'bargain'? Market rate loans would cause a significant shift in thinking about whether HE study was necessary, or even a requirement. I'd be on board, but many universities would close.

George the original one
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Re: University in England (Fees or Graduate Tax)

Post by George the original one »

saving-10-years wrote:
Thu May 11, 2017 10:02 am
Is it the ERE mindset that refuses to see cheap loans as a 'bargain'?
Loans are only cheap when you can put the money to work at a better rate (with minimal risk) and the rate is locked in. If the rate is adjustable after a certain period, then you better be able to repay the loan when the fixed rate ends.

Government-backed loans used for education, even when cheap, need to anticipate the government changing its mind about repayment plans before the end of the loan's term. 30 year terms are out there a l-o-n-g time! And that's in addition to the risk that the education you undertake does not pay off financially.

saving-10-years
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Re: University in England (Fees or Graduate Tax)

Post by saving-10-years »

@GTOO agreeing with all that. Its a curious thing that these loans are being made to young people in advance of experience of the thing they are planning for (so applying for these when aged 17/18 would be typical). Its not a nuanced process, you apply en bloc for all that you might need in the year ahead. Now @olaz and @youngandwise could well have an alternative investment sorted for that 'cheap' loan money, but other students appear to be more worried that they might run out. And of course some do. Also some don't finish the degree (sometimes because of money problems while studying) which is dire as they have debt and no benefit. Although on current system if they stay at low income they won't pay back.

If we are to have mass higher education (over 40% young people in the UK studying at university level, which seems to be the aim) then its reasonable that the people benefiting should pay something and as they have no money at this stage it needs to be a loan, grant or tax at some future stage. I like loan or loan/grant but I would like to think that the implications of a loan were clearer (and less prone to change).

vexed87
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Re: University in England (Fees or Graduate Tax)

Post by vexed87 »

Campitor wrote:
Thu May 11, 2017 9:20 am
Taking a loan, government or private, with the intention of not paying it back strikes me as immoral. I"m with Chenda - her ideas sound best.
It's only immoral if you forget to factor in that the loans are issued by the government which is paid for by the UK taxpayer. The loans are paid out of central taxation, so whether you pay back the loan or not, you're still paying taxes, and therefore the loan. Obviously, in the case of the UK the cost of unpaid loans is shared by society. Stay with me here. The loans increase in proportion to the fees demanded by the universities, which in turn only increase because they are backed by the government and easily available for anyone who meets the minimum criteria of the course (for most universities outside the top tiers, requirements are pretty minimal). No private lender would issue these loans without the government backing because of the high risk of not being paid back in full (someone said 70%?).

Before, when university fee's were non-existent, or low and means's tested - the tax payer picked up the bill anyway. The UK has a strong socialist ethos when it comes to health and education, so no surprises there. So the only thing that's really immoral is that the government has now issued junk bond derivatives made up of these high risk loans, so the UK tax payer stumped the cash, and the government sold them off cheap. Probably packaged and sold to UK pension schemes, screwed twice over. This easy credit in turn enables the universities to jack up fees over time. What feels like sending an entire generation to university is a ploy to encourage economic growth and skim massive interest payments and the fee's generates more jobs in universities, whilst shifting the cost of all this to future generations of tax payers and pensioners. Whatever way you look at it, the tax payer is screwed when students are kept out of the productive economy and take on debt to then go on to struggle to find work in anything other than the services economy, or low paying white collar jobs. The whole academic institution is morally bankrupt and for the most part, teaches most student literally nothing of use to industry. The typical student doesn't realise they are being duped by the secondary education system, where they have it drummed into them from an early age that they need to attend university to get a 'good' job. Most employers are screaming out that student leave the education system without the most basic of skills, and a distinct lack of the advanced ones required in those areas...

These days it's almost certainly better to skip university altogether and make use of the free learning resources on the internet, providing you don't need accreditation, i.e. medicine, healthcare or other academic career tracks. I would have done this myself, had I known what I know now, fortunately when I attended, my fee's were capped at £3,000 per year, it's much worse now. I haven't paid off the loan in full, preferring to make the low monthly payment, because it's linked to the UKs base rate of interest, which is obviously very low in this cooky (nearly)ZIRP world we inhabit. If rates increase, I'll reconsider paying it off sooner, for now I'd rather accumulate my ERE nest egg, hoping I can retire before my 30 years are up!

I would give my progeny the option to go to university with any financial support I can offer, but will expect them to pay cash, live at home and work at least 10 hours a week if they want my money. And they better know what they want to do with their degree before they sign on the dotted line.

George the original one
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Re: University in England (Fees or Graduate Tax)

Post by George the original one »

> This easy credit in turn enables the universities to jack up fees over time.

Different system over here, but I'm LOL because two of Oregon's state-run schools (Portland State University & University of Oregon) were just denied their requests to hike tuition this year.

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