Childcare Loans - could this be the answer?

[olgaga]

So, I was on the other thread about childcare ratios, and it suddenly occurred to me...

The Govt's proposals are a complete waste of time. The Early Years sector and most parents and commentators seem to agree that tinkering with ratios, and insisting on higher level qualifications for childcare workers, will not reduce the cost of childcare.

However, everyone agrees that we want good quality childcare and EY workers to be paid a decent wage for the valuable work they do.

We have a system of Student Loans to spread the enormous cost of further education over a longer period.

Why not a Childcare Loan to spread the cost of childcare over a longer period?

So the Govt pays the upfront fees, which parents pay back over a much longer period, with loan repayments based on income.

Could this work?

[pizzaqueen]

I don't think many people would be in a position to ever fully pay it back. Would it be interest free?

This sounds a lot like student loans system - because I had my son shortly after graduating and work part-time it's unlikely I'm going to cross the income threshold to have to pay it back anytime soon or ever if I have more children (Scotland).

What would the inscentive to pay it back be?

[pizzaqueen]

And how long a period are you talking, most people will have childcare costs until Charente leave primary school at least.

[pizzaqueen]

Children*

[olgaga]

Bear in mind that the point of it would be that you don't pay the huge fees upfront.

Student Loans are "income contingent" which means that you start paying after your income reaches a certain point - 9% of everything you earn annually above £21,000 of pre-tax salary according to this guide.

[olgaga]

What would the inscentive to pay it back be?

The same incentive as there is to pay any loan back.

You will incur childcare costs if you use childcare, but it will cut the immediate cost if you spread the payments over a longer period.

And how long a period are you talking?

Well why not 25 years? But like a mortgage, you could pay it back early.

[olgaga]

Key findings from the recent Daycare Trust survey on childcare costs include:

The average nursery cost for a child under 2 has risen by 4.2 per cent to £106.38 per week for a part-time place (25 hours). A full-time place costs £11,000 for a year.

Costs for over-2s have gone up even more ? by 6.6 per cent to an average of £103.96 per week for a part-time place.

Childminder costs in Britain have increased by 5.9 per cent for a child under 2, to £98.15 and 5.2 per cent, to £96.67 for a child aged 2 and over.

The steepest cost hikes are seen in childcare for older children ? with 15 hours a week at an after-school club costing £49.67, a rise of 9 per cent.

For a family with two children, care in term time, before and after school, costs nearly £4,000 a year.

As well as having the fastest-rising costs, childcare around the school day is also the hardest to find, with under a third of local authorities (31per cent) reporting that they provide sufficient childcare for this group.

[nannynick]

If taking the 11,000 a year figure (which may not be right) then how much would someone who emds up having 3 children, each 3 years apart, owe?

Year 1: 11,000. Year2 22000, year3 33,000
Year 4: 55,000. Year577,000 Year6 99,000
Year7 132000 Year8 165000 Year9 198000
year10 231000 year11 264000 year12 297000
At this stage first child is now nearly 12, do they still need childcare? Certainly there will be some costs, especially during school holidays.

Nice idea but the figures but the debt at the end could be very high and by that time parents may be in their 50's, 60's so how would it be repaid?

[olgaga]

Well you would be making payments as long as you were earning from the get-go, not waiting until you were in your 50s!

How does anyone repay a mortgage?

You would still pay for your childcare, you would just spread the cost over a longer period - say 25 years instead of 12 years.

[BrienneOfTarth]

This isn't actually a bad idea - many people would only need "top up" loans not full fees. A level could be set - say 15% of your income (=£46 per week for a single person £16,000 per year) which would be your maximum contribution, and that would continue at that percentage level whatever happens to your salary or your childcare costs. Assuming childcare costs of about £1000 per month (reasonable for a good quality nursery outside london) from age 1 to age 3, less once the free hours kick in, and then an average of £150 a month after starting school (for after school clubs and holiday clubs) until the age of 13 when they could be assumed to be able to keep themselves out of mischief (ho ho), and assuming that the interest rate on the loan was pegged to average wage increases and that the repayment would increase as wages increased, the debt would peak at about £20,000 when the child started school and would eventually be paid off when the child was 21 years old.

Someone earning £26,000 would pay off all the debt by the time the kid was 12, and if you have a two-earner household at £26,000 you'd be paid off when the child was 6.

I you have 2 or 3 children of course you might never pay off the debt - but it would just become an extra tax like the student loan, to be forgiven.

So long as there were safeguards to ensure that this debt could never take the income below breadline levels, and that the reduced income was taken into account when assessing parental income for University costs (or perhaps you could make it possible to take a repayment holiday while kid was at University?), and so long as all outstanding debt was forgiven on reaching retirement age (or perhaps retirement age minus 10 years?) it might just work.

[olgaga]

I would also assume that it would be interest free, or at most a minimal one-off payment to cover the cost of administration over the course of the long term loan - rather like an arrangement fee for a mortgage (only not as grabby!).

That way it would be cost-neutral to administer.

I don't think it would get very far as an idea if it was about raising revenue for the Government! It would simply be using the Government as a "guarantor".

All it would mean is that instead of having to pay the whole lot up front in a short space of time, payments could spread over a longer period and therefore reduced. Families would then have more disposable income throughout the years when they are raising a family.

[olgaga]

Brienne I luv you, thank you, I was just beginning to think my flash of inspiration was just another mad moment...

[olgaga]

I have to leave the thread for a bit but I'll be back later on this morning.

[Cravingdairy]

I think it's a really interesting idea.

[Beehatch]

One thing occurs to me, and I want to mention this sensitively, but what if a child died and you still had to keep paying off the loan for their childcare. That would be a cruel blow.

[scaevola]

The snag is that in order to make those loans, the Government would have to find the money to fund it for the first years, before any repayments came in.

As there is no spare money in any Department's budget, what would you cut to pay for this?

[MaryPoppinsBag]

I think it is a ridiculous idea.

Have we not learnt anything during the last 5 years of a recession caused by credit and debts that cannot be paid back.

I don't think I would feel comfortable earning a living from borrowed money (I'm a Childminder).

It would also increase the cost of Childcare in the UK once the interest on the debt was taken into account.

What needs to happen is to make employers pay decent wages instead of them being subsidised in one form or another. (Working Tax Credits and Child tax credits).

And whilst they are at it someone could sort out the ridiculous cost of housing. House prices are too high and so are rents.

The fundamental problems will not be addressed as they are not vote winners.

[AprilFoolishness]

No No No.

At the moment we have a situation where vast swathes of the population take on thousands and thousands of pounds of debt at just 18 or 19.

Then if by some miracle they are able to buy a house in their twenties or thirties, there are more hundreds of thousands of pounds of debt, because the cost of property is so far beyond wages.

Now we're saying that once you have kids, you should also incur debt to pay for going back to work... to pay for all your debts.

And all the while you're also supposed to be making your own pension provision.

Are we TRYING to go bankrupt?

[olgaga]

The Government seems to have recently found £200m for small business initiatives.

It has recently found over £12bn to stimulate the housing and construction sector.

I don't see the problem in "stimulating" the EY sector - which is after all at least as important as housing, and a business which is important to the economy.

We need growth, after all.

[olgaga]

Now we're saying that once you have kids, you should also incur debt to pay for going back to work... to pay for all your debts.

No! This is not "borrowing" to pay for something you don't need. These are costs that you would have to pay for anyway. At the moment many families are living on expensive credit exactly because of the high costs they face.

It's the fact that it's a huge expense over a short period that is the problem. That's what makes childcare, and going back to work, unaffordable for many.

This would make going back to work more affordable for those who want to or need to.

Anyway, as I said - I really must go now! Will be back later.

Some really good points being made here!

[nannynick]

Some people with a mortgage plan to repay it by selling the house. You can not sell children.

Any system needs to be easy, none of the complex tax credits thing we have had. Simple to understand, simple to administer thus keeping admin costs low.

Tied to earnings sounds good but what if parents split, who is responsible for the debt both parents, or just the one with custody? There are going to be things that make it complex.

Some sort of loan system could well work but a number of those loans may not ever get paid back.

[HandlebarTash]

Childcare is already spread over 11 years minimum, assuming you work from when they are babies. More if you have more than one child. I will be paying childcare bills for at least 15 years.

What kind of period would the loan be spread out over? And when would I start paying it back?

If I started paying it back over, say 20 years, when my children no longer need childcare I would be paying it back between ages 45-65. Assuming I'd be paying interest on that, I wouldn't actually save any money!

I'd rather not be paying off my childcare at 60, thanks. If people had children later than me, in their late thirties or early forties, they could be paying off childcare loans in their seventies!

[olgaga]

Beehatch Given the child mortality rate I'm sure that cost could be waived.

[olgaga]

Assuming I'd be paying interest on that, I wouldn't actually save any money!

Yes but it's not about saving money - the costs will be the same, just spread over a longer period.

It wouldn't be everyone's choice - but obviously it wouldn't be compulsory!

[HandlebarTash]

So at the moment, I'm paying £80 a week in childcare (I know others pay much more).

I suppose I can see the advantage of paying £80 a week between 45-65, as opposed to between 30-45. But there are all sorts of questions? If I lost my job or developed ill health and was unable to work now, I would stop paying the childcare. But what if I was unable to work from age 50? I then have childcare debts I probably couldn't afford to pay.

[olgaga]

Well briefly, I suppose the point is that for many people childcare seems unaffordable at the time they need it, but spread over a longer period, (however long - it wouldn't necessarily have to be 25 years) then paying for it would be more manageable.

Most people could not afford to buy a house if mortgages weren't available, and most people borrow vastly more to do that than pay for childcare.

I'm not saying that you would have to borrow the whole amount either, you might prefer to pay (say) 50- 70% of the cost throughout the time you need the childcare, and defer the payment of 30-50%.

We need someone who knows more about loans/student loans etc!