'Rich students save by paying fees up front'

[QuietContraryMary]

Lol

www.bbc.co.uk/news/education-46866346

'The wealthiest students are going to university in England for the lowest cost, by paying their tuition fees up front, say researchers.

About 10% of students are not taking out loans and so avoid interest rates of 6.3% paid by other students, says the Intergenerational Foundation.'

'Interest charges begin to build up as soon as a student begins at university - and about £6,000 can be owed before a student even graduates.

Those paying up front will leave not owing this money - and they will not be part of the repayment scheme paying back loans over 30 years.

This will give self-funders a "serious economic advantage" when they leave university, say researchers.'

This is rather silly.

Firstly the interest rate is only 6.3% during the course, or if you are on high earnings. If you are on very high earnings then your debt will get repaid. If you are on low earnings then it will never be repaid and the rate is any case only 3.3%, so the rich students never saved anything, since, well, you got fees + maintenance loan and you never paid them back, whereas they paid for them out of pocket.

The issue really isn't with the 6.3%, but with the fact that if you can pay for fees up front you have lots of money, which is hugely advantageous quite irrespective of university.

It gets wiped after a certain amount if time

Note btw that if you are working overseas then you are supposed to submit an income assessment - if you are earning over what can be a much lower threshold then you will be hit with the full RPI + 3% interest

For example in Algeria the lower threshold is £5k and the upper is £10k, so if you told them you earned £10k you'd repay £450/year but stack up much more in interest. Clearly this is not a problem so long as your projected future income remains below the RPI value of the interest on your loan since you'd simply never repay the loan, and the spiralling value of the loan is meaningless. The problem would come if and when your income increased to 'principal repayment' levels, say £60k or so - you'd be paying back interest incurred when the absolute value of your income in say Algeria was insufficient to repay the loan.

In any case it does make sense to borrow the maximum that is permitted because the more you borrow the more likely that the nominal change in the loan value due to inflation is higher than the 9% repayment rate above the threshold hence you don't repay

It's a loan, regardless of whether you ever have to repay it in full in the unpredictable future - the government could move the goalposts any time they think they can get away with it, which is likely to be some time soon if they calculate that most people are only paying a fraction back and it's all getting rather expensive. The advantage of paying back the loan if you can afford to, therefore, is that you are freeing your children forever from debts they might otherwise be trapped with while the government plays fast and loose with the terms of repayment. It's not like the goalposts haven't been moved on retirement ages, pensions, tax rates, etc, so why would they carry on with the same arrangements for student loans ad infinitum? Either you take the burden off your children while you know you can, or they shoulder the risk involved in taking out loans with uncertain and changeable repayment terms.

the government aren't going to suddenly revalue the loan at twice what it was worth the day before. There is literally no reason to repay it at all if the debtor is earning less than £25k.

It's not like the goalposts haven't been moved on retirement ages, pensions, tax rates, etc, so why would they carry on with the same arrangements for student loans ad infinitum?

None of those are contractual entitlements. The government can no more alter the repayment terms of a student loan than a bank can alter the terms of a loan. New students can be subject to new terms. Existing students are tied in to the terms they agreed to at the inception of the agreement.

Your entitlement to a state pension is not locked in at 18. Tax rates are, obviously, an annually reviewed budget item. The reason why the discussion of student loans so rapidly becomes unhelpful is that people think that there are risks which simply do not exist.

What if the government changed the terms of early repayment? Why not just pay the debt when it falls due if you can afford to? You might not be able to afford it later on, when your child starts earning "too much."

Either you take the view it's your child's debt and they should always be responsible for it, or you pay it for them at some point (which many would view as an unfair legup from people who never needed to borrow from the State in the first place). Squabbling over when you pay it for them is just fiddling about with public money in the sort of calculating way that plenty of people disapprove of.

Reflectmonatomism
You make so much sense.

Reflectant - still doesn't alter the fact that not paying back money now that you can afford to pay back now will likely just result in a worse deal for future generations of students - ie your children's children - because the model is not affordable if hardly anyone ever pays the money back. Why encourage wealthy people not to view a debt as a debt that should be repaid? People distrust it and don't view it as a normal contract because the terms are ludicrous and one way or the other, the taxpayer foots the bill, so we all suffer if it costs too much to sustain.

There are a couple of articles here:

www.bbc.co.uk/news/education-46591500
cdn.obr.uk/WorkingPaperNo12.pdf

Basically the government lends £16 billion, which has a cost of £9.7 billion, reflecting the cost of the government itself borrowing that money (which is at rock-bottom rates).

HEFCE funding in 2017-18 amounts to £12 billion, of which £3.5 billion is from the government and the rest from fees. Except of course most of those fees are being borrowed. And most of that borrowing won't be paid back.

So the government spending on HEFCE funding is actually more like £8.5 billion, which is pretty much what they were spending in 2010-2011 under the old scheme/fees.

So if the government wants to reduce actual higher education spending, then it has to cut fees, and hence real university income.

And in fact the system seems to be more progressive than the old in that the old loan is repayable by those on quite low salaries, and also there is a negative real interest rate on the old loan, so that those with high salaries are discouraged from paying it. Whereas with the new scheme there is a 3% real interest, so if you are a very good earner then it may make sense to pay it back. Which is surely as intended.

None of this bears any relation to what the BBC published. In some ways even higher tuition fees and a reduction of (direct) HEFC funding to zero would be even more progressive, since you'd extract money from those who can afford it, while for those who cannot the debt just gets written off, and they won't repay it.

I have chosen in effec to pay twice - I pay a lot of income tax (*which funds those who will never repay any student debt) and have chosen to pay so mmy children graduate without student debt - 3 graduated so far and 2 at university now.

i certainly know the arguments on eithr side of this argument. I just wanted to spare them the 9% tax on their earnings between £25k and £100k+ or whatever they do or will earn. If they don't ean that that's fine too and if I might have made some tiny amount by investing the money for 5 years at 1% then I couldnt' care less as I can afford to lose that apparent gain and teh advantage of not having that psychological burden of the 9% tax over me and the children and complications of dealing with student loan company, rules changing etc is not worth the hassle.

Or perhaps I am doing it for the good of the poor. May be Corbyn will send me a socialist people's medal for services to the state by relieving the state of the burden.

This is the same as anything in life. House, car electrical. Even bulk buying food

QuietContraryMary - that's a triumph of robot logic over human psychology. A debt is a debt. I wouldn't want a debt hanging over me for 30 years, even if I did get occasional breaks from it if not earning enough. And the children of the wealthy are more likely to be well paid themselves, so why on earth would their parents wait to check that they are earning over a certain amount before they cough up for them? How much would that really save them? And how many poor students choose to go to university for 3 years in the hope they will earn too little subsequently to have to repay their student loans? And how many poor students find it easy to imagine ending up in a job so well paid, they can afford to pay the whole lot back? What they are more likely to imagine is university having been a waste of time from a career perspective, or that it has resulted in them having 30 years of a debt hanging over their heads and having to be factored into every decision they make, and possibly mistakes being made in calculations or information provided and being chased for money owed when it is least convenient - an extra stress it would be lovely to avoid altogether if possible. Pay your child's fees for them and you take all the stress away...

My dc are intelligent enough to see it as a tax not a debt

It's money owed, bruffin, which may one day be written off, if tou earn too little for too long. If it were a tax, then all people who had been to university and earned over a certain amount would have to pay it, which they don't - your parents can pay it all off for you in a lump sum, then as if by magic you have no "tax" to pay. So if it is a tax, it's a bizarrely unfair one!!!

that's a triumph of robot logic over human psychology.

You think so? Gosh. Most people, parents and offspring alike, understand exactly the logic of loan vs paying upfront.

And plenty go to university not expecting to earn that much. Good job too otherwise we'd have no teachers or nurses...

Most teachers and nurses earn enough to pay back their loans, so the argument you may never have to pay it back is a bit pointless - who goes to university for a job that earns so little they don't have to pay back the loan?

And what is the logic of a loan if you don't need one? Ie why not pay upfront if you can?

Should you take a loan subsidised by the state to make a profit out of it?

"that's a triumph of robot logic over human psychology. "

aka, a triumph of human reason over human stupidity. Isn't the point of education precisely to allow us to evaluate these sort of decisions, rather than act like some helpless animal?

" And how many poor students find it easy to imagine ending up in a job so well paid, they can afford to pay the whole lot back?"

Not sure I follow. If they are poor, and remain poor, they don't pay back the principal even on a 'free' basis. If they are poor, but they become rich, well that's education doing its job, yay.

"30 years of a debt hanging over their heads and having to be factored into every decision they make, "

Hardly.

The kind of debts that hang over your heads are mortgages, loan sharks, credit cards, etc. Ones that you never need to repay if you can't afford to do so are in a different category. Learning to recognise the distinction is a useful life skill.

"Most teachers and nurses earn enough to pay back their loans"

Define 'pay back'. You need to earn £50k+ to actually repay any principal, even at the 'free' cost of RPI+0.

"Should you take a loan subsidised by the state to make a profit out of it?"

Where's the profit? You simply don't repay if you can't afford to do so.

There is profit in it, though, according to those who argue that you can take out the loan, invest the money your parents already have to pay it back, and get more interest out of the savings than you have to pay back in loans.

Why not make it a graduate tax, instead - payable by all graduates who earn over a certain amount?...

Because human psychology means people will go out of their way to avoid the tax? Because people don't like monthly payments being taken out of their salary or other earnings? Because it has to be accounted for in a way governments don't like? Because the wealthy prefer to pay upfront and get it over with?

Why not make it a graduate tax, instead - payable by all graduates who earn over a certain amount?...
That is basically what it is now!

bruffin - in what way is it a tax, when you can pay the fees upfront, or pay off the "tax" in full at any time you like, irrespective of earnings?