Politics of envy at work here?

[scaryteacher]

www.telegraph.co.uk/news/newstopics/politics/8084068/Successful-graduates-to-pay-redemption-penalty-on-student-loan

This really irritates me. If a parent has saved the money to pay off their child's student loans, why introduce a redemption penalty? One would imagine that the money was needed sooner rather than later, and that to clear the debt would benefit the country and the student.

I can't decide if it's politics of envy or Vince Cable being a twit again.

Who gets the interest payments? If it's the Treasury I'd say it was a way of getting more money into the coffers although I find it hard to believe that Vince and co would have been bright enough to think of that.

I think you'll find its about 'fairness'

Why is it fair to penalise people who can pay off the loan early?

I don't think the Treasury will get the interest payments as there are moves afoot to sell off the Student Loans Company so presumably whoever bought that would reap the profits.

Turn it the other way, how is it fair to allow some people to pay off capital with no penalty whilst others are in it for the long haul (with interst). They don't want it paid off early, they want everyone in the same boat.

All it will mean is that anyone who can afford to do so will finance their son or daughter's university years directly and make any student loan they take out as small as possible.

Hence politics of envy wanting everyone in the same boat.

One can normally pay off a loan early with no redemption penalties, and this applies to some mortgages too. The financial institutions are glad to get some of the loans cleared off their books.

Chil, I hope you are right. I don't see how we can be 'got' if we pay the fees up front in full and then the living costs as well.

Also Blackduck, high earners are contributing more in tax, so why hit them twice?

I'm looking at Unis in Europe for ds at the moment, much cheaper.

Without a redemption penalty very high earners or those with wealthy relatives will pay much less than middle/low earners. If you think that's fairer than the alternative then we're too far through the looking glass to carry on any sort of sensible discussion I think.

link doesn't seem to be working.

If you're that rich surely you just don't take the loan out in the first place?

It works the other way around of course.... if three people take the same degree course, take out the same size student loan and get the same qualification - one lands a £100k job, another starts at £30k and the third opts for a minimum wage role... the first two have to pay back the loan plus all the interest (plus a penalty charge if they want to clear it any faster) whereas the third one doesn't have to pay anything back because they're under the earnings threshold. How is that any fairer?

'Without a redemption penalty very high earners or those with wealthy relatives will pay much less than middle/low earners.'

We have saved to put ds through uni from income; why should we/he be penalised for that?

I think the loan system at the moment is fairer perhaps, and that this will actively discourage ambition. Why burden kids with a millstone of debt before they even start? The loans are taken into account for mortgages etc, so they'll be living at home for longer now, or they'll go and work abroad and won't pay it back in any case, so that's a lose, lose for the UK.

Investment in education is risky and if you want people to go to uni then you need to find a way on insuring them (so that those who don't end up in good jobs don't end up saddled with huge debts that they can't ever pay back). The problem with a loans based system with debt write off is that it is the general tax payer that has to pay for thi, . With the proposal of a tiered interest rate (and redemption penalties) it is the higher earning graduate that has to pay. - surely this is fairer, those that did well out of the investment partially subside those that did badly?

Students with well off parents will just not take the loans though surely - or not the full loans? Or if they do take loans on top of parents paying all fees and living expenses then that is their lookout.

I knew several people at uni who were well funded by their parents, but chose to take a loan anyway to have extra spending money/buy a car etc. Then had the gall to moan about paying the loan back.

What would be fairest would be to get rid of this insistence that so many people go to university getting low quality degrees in random subjects, which don't actually lead to any better job prospects than leaving after A-levels and going straight into work.

Then we could afford to fully fund those that do go, which would enable people from all backgrounds to attend and chose even the more expensive courses without having to worry about whether they could afford to or not.

'those that did well out of the investment partially subside those that did badly?'

So, if you have someone who can clear their part of that loan book quickly and get the debt off the books (thus ensuring it doesn't go bad), why should they be penalised for that?

If I choose to take on the risk instead of the state by paying off loans early, surely I should be penalised? It will be interesting to see if one can get a uni place without having to take a loan, or if the one is contingent upon the other.

Will there be a difference between a fees loan, and a maintenance (living costs) loan?

mortgage style loans (payment amount the same for everybody). Simple but means that those who end up in bad jobs are saddled with huge debts (relative to their income)

income contigent payments- here payment amount is linked to income and can be combined with a write-off so that those who are poor throughout their life don't have to pay as much. General tax payer may have to subsidise the interest rate and will have to underwrite all the bad debts. This means that it is general tax payers who subsidise education and not those graduates who are earning loads and loands

graduate tax. people pay back an amount proportional to what they got out of going to uni. This is like risk pooling. Those that do better pay more. The tax payer (when they system is up and running) won't have to subside the system at all. BUT some don't like this because it forces all graduates to borrow the same and does not allow for variable fees

vince cable and others are trying to think of ways to get some kind of risk pooling in a loans based system; personally i feel that if you are not going down the route of variable fees that a graduate tax is the best option.

phew. sorry for all that but thought some might think it useful

'This means that it is general tax payers who subsidise education and not those graduates who are earning loads and loands' ...40% and 50% tax is making a contribution surely?

I think a graduate tax is inherently unfair and means you may be paying for all your working life. There has to be the option of early repayment without penalties, or, the option to take up a uni place without it being contingent upon a loan taken out, so that it can be paid for upfront if funds allow.

The graduate tax is a stupid idea: it is effectively a tax on being educated. I can see that we would end up with Universities full of people like DD (a plodder who wants to do a 'worthy' Govt job). Go-getting people like DS will eschew Uni in favour of making a living on his own terms (entrepreneur). It would be the death of Universities.

WWATT - thanks for the explanation - it helps. Still think going back to fees being paid and grants is the best idea.

I think a graduate tax is unfair.

I want to know what happens in the case of those who dropout?

Zephirine -good point.
Scary - I am not advocating the system, just pointing out the arguements. Good for you on saving up and wanting to help your children, but not everyone is in the same position.