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?

[HandlebarTash]

But as somebody upthread pointed out, you can sell a house. A house is likely to increase in value over 20 years. Children can't be sold, or repossessed!

[tethersend]

Whilst I can see your logic, I think we should be campaigning for government subsidy rather than loans.

[olgaga]

No I don't own a nursery chain! Anyway even if I did, I don't see how this suggestion would put more money in my pocket. It would simply make life easier for parents and allow them to enjoy more disposable income while their children are young.

The point is, all the campaigning in the world won't achieve any significant childcare subsidy.

Children can't be sold, or repossessed!

Obviously - but you don't expect to get back the money you pay for childcare whether you pay it all at the time, or spread the cost over a longer period.

I was just using the analogy of a mortgage being a long term loan which makes it possible to pay for something that would otherwise be unachievable. It simply makes the cost more manageable.

Childcare will always be expensive - and I can only see it getting more expensive, not less.

Certainly the ratio proposals won't do anything to reduce the cost.

[MrsBungle]

Interesting idea but I agree with tethers. We should be campaigning for government subsidies not more debt. Personally I'd rather pay my extortionate nursery fees for 2 kids now whilst I'm using it and not have a large debt to look forward to trying to pay off. I realise, though, that I'm lucky I can just about afford to pay my fees.

[AThingInYourLife]

"Anyway even if I did, I don't see how this suggestion would put more money in my pocket."

You don't see how government-backed loans lead to inflation in the prices of the services they finance?

Have a think about college fees here and in the US.

"Of course it's affordable. You don't have to find the money upfront."

"It's not really a loan, it's just an extra tax, so you can take out as much as you want and only pay it back if you earn over the threshhold."

[Saxie]

I think it's a brilliant idea. If you can get career development loans for masters degrees why shouldn't you get career continuation loans to prevent a hiatus in your career progression during the early years? Nurserys cost a lot to stump up out of earnings and make it seem like the cost of childcare should be comparable to the woman's salary, without including the loss of earnings potential if the woman doesn't make it back into the workplace when her children are of a suitable age.

[BrienneOfTarth]

Saxie that's the point I wanted to make but gave up trying to compose it as it kept not sounding right.

Obviously some parents (and this can apply to men too so I'd rather not use women-specific language) feel that it's right for their family to have a parent at home. However, lots of people find themselves stuck because the unavailability of affordable childcare means that they can't pursue the career they want to. Being able to choose the childcare that is right for your child and only have to pay for it as a set fraction of your earnings (thus paying way below the going rate if you aren't earning much) could mean that you DON'T get stuck in that trap and can become a higher earner much quicker than if you had to wait till you no longer needed childcare.

Low-earner -> can't afford childcare -> keeps working hours low (e.g. to 15hrs per week of free care for 2yo+) -> career doesn't progress -> stays a low earner.

Low earner -> able to access good quality childcare regardless of means to pay -> able to pursue career -> gets promoted -> no longer a low earner and can pay loan back.

SO LONG AS there are checks to ensure that if it doesn't work out like that, no-one is made significantly more disadvantaged or punished if it becomes clear they will never be able to repay, then this is a good thing.

[olgaga]

OK so what about the problem that many women face. Those who don't have professional careers with expected progression, for whom childcare means working for several years for absolutely nothing?

[olgaga]

AThing

You don't see how lack of supply has inflated the price of childcare?

The only thing that will stabilise the price of childcare is increased supply. You will only get increased supply if there is increased demand.

The only way you'll get increased demand is if you make it a viable alternative for more parents.

[caramelwaffle]

As *WBHV says:

better to "pay for childcare out of Gross pay"

Or make it 100% tax deductible - as chauffers are said to be.

[olgaga]

WBHV, caramel etc. Just to pick up again on that point about increased mortgage finance leading to house price inflation...and gross income or other tax allowances - which would be a form of Government subsidy.

I think a Government childcare subsidy in the form of tax allowances as you suggest would certainly have an inflationary effect on the cost of childcare - which is why I am not suggesting that.

I'm suggesting a facility which would enable all parents to absorb the cost of childcare by spreading payment over a longer period, in the same way that university students are enabled to undertake further education without having to pay all of the upfront cost over the very short time it takes to gain their degree.

[caramelwaffle]

In the case of parents who separate, who pays back the loan?

A great many people who produce children walk away without paying even minimum child maintenance: will this be yet another cost borne only by a single parent?

[olgaga]

As it would be income contingent, I would say that if either or both parents were earning, either or both would be expected to pay an amount in accordance with their income towards the outstanding amount.

There are plenty of parents who find themselves single before they even get to the childcare stage. I don't think they should be refused access to the scheme!

[olgaga]

Childcare loans scheme proposed by thinktank

Damn! There was me thinking I had come up with an idea...

These policy wonks apparently beat me to it.

[olgaga]

You can download a PDF copy of the full report here if you're interested.

[amothersplaceisinthewrong]

I read somwhere recently that a not insignificant portion of student loans will NEVER be paid back....

[olgaga]

Apparently the scheme is already being considered in Downing Street, according to This is Money.

Personally I don't think £10,000 is enough, when you look at the Daycare Trust figures for the actual cost of childcare:

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.

Still I suppose at least it could defer the payment for approximately one year of care. Perhaps it's based on going back to work the year before school, or even assisting with the cost of wrap-around care when the child starts school.

Interesting idea though - thanks to all those who have contributed so far.

[AThingInYourLife]

"You don't see how lack of supply has inflated the price of childcare?"

That is a separate issue from whether this scheme would create inflation in prices.

Evidence from the US, where the costs of college education are running out of control, that costs rise with every increase in the amount of student loans that can be taken out.

I think we're seeing a similar thing in the UK.

When government money is made available, people want to get their hands on it.

Nurseries are different from third level institutions, so might not have the same incentives to charge as much as their customers can get.

But I'd want to be pretty sure before I introduced a scheme that made childcare even less affordable.

[olgaga]

The cost of childcare has always been high - even before existing Government subsidies it was high in relation to average wages. The high cost was the reason for the subsidies, not the other way around.

The only thing which can reduce the cost of childcare would be increased availability. That will only happen if there is more investment. More investment will only happen if there is more demand.

A loan scheme is not a subsidy.

How do you explain the record drop of 10% in the number of university applications for UK university courses this year?

[AThingInYourLife]

None of that addresses my point, which is that a government loan scheme has the potential to raise costs.

It's a legitimate concern for a policy like this and waving it away as unimportant would not be an acceptable response if you were a real policy maker.

If, as you claim, there is a problem with childcare being unaffordable, it would not be a good idea to respond to that with a policy that would raise costs further.

Whether other things have caused costs to rise in the past is irrelevant to whether this thing could cause them to rise further in the future.

"The only thing which can reduce the cost of childcare would be increased availability."

Well then why not focus on that, rather than a loan scheme which might do the opposite of what you claim to want?

I think it's also important to recognise that without increasing childcare ratios to levels that would be unacceptable to most parents, there is a floor below which the costs can't drop.

As long as we have minimum wage + ratios, childcare costs are not that elastic.

Your proposal seems to provide incentives for increases in price but does nothing to reduce costs so that they might be lowered.