A Labour minister has just tried to explain on LBC why U.K. society requires young people who attend uni to pay a graduate tax

[EvangelicalAboutButteredToast]

And I’m confused. He was trying to say it was a student loan and then accepted it was a graduate tax and that society deemed that the right thing because they were more likely to out earn those who didn’t attend uni.

I thought that was what income tax was for alongside all the other taxes. Are uni courses subsidised by the government. Is it that?

It comes down to if we want a high skilled workforce doesn't it?

I think it is a valid comparison, Germany France etc have similar economies, with similar demands on the public purse ie on health education transport etc etc.

What pro high tuition fee supporters don't get is these loans are v often never paid off, so what exactly is the point? so the state is still having to subsidise the HE/FE sectors.
The system also favours the well off, they can either finance the course or pay off the loan quickly.

Surely a better system, whereby debt is repaid, should be designed? minimal interest & smaller loans?

All we seem to be doing atm is encouraging people to leave the UK...

BTW i'm not against tuitions per se but they are, imho too high and in sectors actively discourage promotion and higher salaries eg my DD went from B5 to B6, 8k extra salary, her take home pay has barely changed but she has a whole heap more responsibility.

The interest should not keep accumulating in years the graduates are under the threshold for earnings and should always be at a very fair rate. That would be simple.

The reason I brought up Sharia compliant loans is because I want to understand how they are going to do that. There would be a bullet fixed repayment amount as interest is not allowed. If it is offered to some YPs, the product needs to be offered to all YPs. If it is more favourable and gives more certainty, they should all chose that.

Is it because the better educated you are the less likely you are to fall for right wing propaganda? Maybe that's why he/she wants a university educated population?

Thank you for demonstrating once more that you haven't got a clue what you are talking about. The figure you quote is for young people going straight from school to university. As I've said a couple of times, the 50% figure is the proportion who start university by the time they are 25.

I’m also a lawyer and specialise in the sector. We actually think the current figures are over 60%. It was 55.4 in 2022.

I’m not pro high tuition fees. I doubt many people are. However I work in the sector and I know how many universities are making a loss on Uk students and the extent of that loss. It isn’t sustainable. Those choosing university should be making careful decisions not just jumping in because they haven’t got anything better to do and then expecting the tax payer to pay. Education is valuable if the right choices are made.

My personal view is that we need significant consolidation in the market both in terms of institutions and courses. Those courses which are not attracting students should be dropped. Tuition fees need to increase again but universities need to decrease their spending on student support (which is out of control). DSA should be means tested and capped at a low level with far higher thresholds to access it, student loans should not have interest applied until the student has finished their undergraduate degree but should then be repaid at a slightly higher percentage of income so that the debt is cleared more quickly and the interest doesn’t compound as quickly and it should continue beyond the current 40 years until at least the principal sum plus inflation has been cleared.

students also need to make more sensible choices. You shouldn’t be applying to Brighton or London where accommodation is going to cost you double what it would cost you to go to keele if you can’t afford it and you are unlikely to be a high earner.

I actually think we should also be encouraging more kids to apply to their closest university and live at home for part of the time. we are a small country and there are lots of universities. It’s certainly possible for the vast majority of students to commute - particularly with sensible and thoughtful timetabling from the universities to avoid 9am lectures and seminars. Living in halls for a year and then being at home for the rest of the time is a good compromise and massive money saver if you cannot afford to live away for a full three years.

@SerafeeOur closest university is Bucks New. My dd did MFLs. They don’t do that. They don’t do lots of subjects. Why should DD go there (bottom 10% of ranked universities) when she could apply to others in the top 10%.? Are people to be defined by where their parents live in terms of HE. We have no public transport either by the way. So who transports DC?

@Serafee - most of what you say makes sense. However, 40 years plus means you want people to keep paying potentially into retirement? So the upper limit does need to be state pension age.

Fact is many of the current young do feel that their future has been stolen from them, both in terms of destruction of the planet, but also in terms of the huge expectation on them to pay for an ageing boomer/Gen X generation. People say that bulge will pass, but with medical advances I doubt it.

There are not many jobs around. I think YPs going to uni against that backdrop is far better for them than lingering at home. There should be more training opportunities in more practical skills too.

The reason foreign students have been attracted to the UK for many years is because of the whole lifestyle around halls/student living/parties/support. It is where the UK is different from other countries (US is similar to UK in that regard). They came here because insert France/Germany etc was not as fun and not the same “experience”. As a country we have massively benefitted from attracting talented people from all over the world who often then stayed here and paid into the system long term, despite being educated at huge cost to their own countries until the age of 18. They also pay their way and supposedly subsidise uni fees.
However, if secondary schools are only getting 8k ish per student with a full timetable, we do need to question how unis are spending purely on undergrads in excess of that. More likely the “students” are subsidising other lost funding of unis. Then the whole debate starts on who funds research etc. Well that I think should be a bigger investment from Government, especially if they pulled us out of EU funding and other opportunities. That should not be disproportionately born by undergrads who are principally there to get a certificate so they can access employment.

Whilst I agree students should go to their local commutable unis as well, if they are a good option with the right courses, how do we have a two tier structure of international students living campus life and all the fun that entails potentially vs UK students commuting in. The unis would have to put some thought into that too.

Ohdear111 - Bucks students can surely commute into London unis? Tiring it may be, but plenty of options there.

Point is though a uni structured around commuters is completely different from a uni structured around campus students. Latter will be more evenly spaced teaching, former will concentrate it on set days with more online opportunities on some days. So squaring that is not easy.

The £100k ~ £120k number is the estimate after student loans have been repaid - my point is that without student loan repayments the accepted premium is in the £300k mark, and therefore would be self funding without the overheads of a whole student loan system :)

But I agree, the massive expansion in university places and graduates under Blair, without any plan, support or incentives for the economy to absorb these graduates, has hugely reduced the premium that a graduate can expect. At the same time the same Government culled the FE colleges that provided vocational and technical training, resulting in a huge skills gap and massive immigration to meet the demand for the skills that were still needed.

The result, some 25 years later, is that those with practical skills like electricians and plumbers, out-earn most graduates for much of their careers. But worse, the graduates that universities have delivered are not in the tech space where all the economic growth over the last 15 years has come from. An abject failure across several governments, but the foundations were laid by Blair / Brown and the current governments crusade against private business and innovation is only set to make things worse for the UK.

He's right - it's historical though. It was the tory-lib dem coalition. The lib dems were against tuition fees and couldn't back down. The favoured a graduate tax rather than a loan. The tories didn't care - they wanted it paid for.

So the compromise was a graduate tax in the form of a spiralling loan that is never paid off.

Apologies - you are correct. The average wage for graduates is £42k, whereas for non-graduates it is £30,500. However, that is a level where they will only pay 20% tax so the total additional tax take over a 40-year working life is £92k compared to a non-graduate. Taking into account the fact that the government loans on average £53k up front and it would take the student's entire working life to pay the £92k additional tax, this would not cover the cost of the student loan, so I'm afraid it wouldn't be self funding. And, of course, the government currently gets the additional £92k tax plus £61,200 from student loan "repayments", so savings would have to be made somewhere if we took those away and simply relied on income tax.

Having said that, I agree with the rest of your post.

Absolutely

I would obviously be happy for them to repay the loan, its the interest rate I have more of an issue with

Yes and if you take the loan and never graduate, you still have to pay it back

Plan 5 is worse for average earning students than Plan 2. You have nothing to be grateful for.

It is not possible to get an unsecured loan for 40 years commercially. Indeed, it is pretty much impossible to get an unsecured loan of over £50k regardless of the repayment period. However, an unsecured personal loan typically charges 7.5% interest.

Most students will not pay little or no interest as the debt will be written off when they have paid less than £65k in total. Even for those that are on plan 2 or have postgraduate loans and pay the top rate of interest, the current rate is 6.2%. For all other plans, the interest rate is 3.2%.

As I said previously, the only reason the interest is there is so that higher paid students end up paying more towards their degree.

And that then becomes a choice doesn't it. Hopefully an informed one about sensible subject choices and cheaper locations. There are plenty of universities that are commutable from Buckinghamshire. London for example. Anyway your children are from a high income family so if you choose to fund them living elsewhere that's fine. I'm talking about how in general I think there will be a longer term trend towards a system like in Australia or on the continent where it is very normal to live at home and go to a closer university. Rents are simply not affordable for students.

In the longer run there would actually be less of a hierarchy since all universities would have a much broader mix of students.

The comments from another PP about how our universities are more fun than on mainland Europe goes back full circle. Yes its fun being on campus but if you are going to access that fun at great expense (living away is expensive) then you need to be prepared to pay back the student loan you have taken which has been funded by the tax payer. Its fun being on campus in the States too but people accept that they can't access that other than via scholarships or at extortionate cost.

It's horses for courses but in the long term it would be better for the sector as a whole if students lived in halls for the first year to make friends more easily and then commuted. I have seen this set up increasing in my DC's academically selective independent school. There are far more kids than there used to be choosing a local university and living in halls in year 1 and then commuting in years 2/3. One of my own DC is living at home for his post graduate course.

The real killer is the compound interest accumulating in the early years when there is no prospect of paying anything back. I suspect this may be even more damaging than the actual interest rate.

I would like to see two changes:

1. interest does not start to accrue until the degree course is finished (with appropriate adjustments for students who abandon their courses or courses that are withdrawn part way through),
2. when interest is charged it should be no more than is reasonable to account for inflation. I am not enough of an economist to say whether RPI/CPI/base rate or whatever would achieve this objective but it can't be beyond the wit of man.

But first I think we need an up front discussion about why interest is charged on student loans in the first place. In a normal situation A is willing to lend to B on the basis that whatever interest rate they agree is the only compensation that A will get for being out of pocket until the loan is repaid. When A is the government lending for student loans, it gets back an educated workforce and a more stable educational sector and no doubt much besides, as well as the interest. There isn't really a way in which the government is out of pocket in the same way. So it doesn't seem right to me that they should be looking for interest rates that provide much compensation beyond inflation. Certainly I don't think that commercial interest rates are a fair comparison.

To say again, many students don't even pay back the amount borrowed, let alone the interest. Most only pay a small fraction of the interest at most. Those paying the interest in full are a minority - those with average earnings of £52k+ over their lifetime, i.e. at least £10k more than the average graduate. If you are one of the many students who won't pay interest, or will only pay a small part of it, the interest rate and when interest starts being charged makes no difference.

The current interest rate for most schemes is 3.2%, which is RPI as it was on 1st September. Higher interest rates are only charged for students on plan 2 (current students in England are on plan 5) or students with postgraduate loans. Plan 2 interest rates can go up to 6.2% for those on high incomes - still below normal commercial interest rates.

The purpose of charging interest is so that students who become high earners pay more overall towards their education than students who end up in lower paid jobs. If you took away the interest completely, a student who ends up in a job paying £100k+ per annum would pay the same over their lifetime as a student who ends up in a job paying £40k per annum. The government thinks the student who ends up earning £100k+ should pay more. I'm not saying they are right to take this approach, but that is what the interest is for.

slight nuance in italics

its a graduate tax on everyone except the very wealthy

(thats because they don’t need to take out a student loan)

What would the “vanity degrees” be? I assume you mean humanities?

I hire between 5 and 15 graduates per year. I need people who are self starting, motivated, have demonstrate that they can apply structured thinking to achieve an outcome.

So I hire across the spectrum but best outcomes I have noticed tend to be those with degrees in history, art history, politics, psychology, classics, English literature.

My grads start on £35k and within 8-10 years are earning above £80k. They are not only repaying their loans, but paying a decent amount of tax (and, independent of that, having a significant positive impact on the UK economy).

Those are exactly the degrees that I am talking about they bring nothing to the party, those people who can think in a structured way will rise to the top any way we need people who can build, invent, scientists and medical people. A degree in politics never helped where it really counts.

I respectfully disagree. The skills they gain through university - to be able to research, critique, iterate their argument, articulate their thinking, defend their logic, follow prescribed formats, present, work towards goals - they are not innate skills. And they are exactly the skills I need them to have.

If those degrees didn’t exist then I (and many other employers) would essentially have to replicate the degree course - formulate a 3 year programme to impart those skills, with an option to employ some of the ones who make it to the end if the program. We actually do that for some more specialist skills (but just a few months of training) … we do it in conjunction with universities, because they are best at getting the outcomes!

Did you think a history degree was only useful for teaching history?

@Paulrn We really really cannot exist on just scientists! We need a variety of critical thinking and skills. Many stem grads don’t have this. Other grads use different parts of their brains (eg mfl) and that’s a very good thing. We just need fewer of some degrees where employment outcomes are poor. It’s long been the case that the uk has valued varied skills and we need that to continue but we also know we over produce some grads.