Realist, not conformist analysis of the latest financial, business and political news

Increasing Student Loan Repayments Is A Grand Idea

What matters is what works

Someone finally starts to understand – even if they’re not saying it out loud, only implying it – what the point of moving to student loans was.

To freeze out, on the grounds of cost, those doing degrees that aren’t worth being done.

No, really, this is the point. We want people to do degrees where the education adds value. We do not want to piss away money on degrees that do not add value. The way to do this is to force degree takers to see the prices relevant to their choice.

Increasing the amount that graduates in England repay on their student loans could save the government close to £4bn each year and avoid universities having their income slashed, according to a report by the architect of the current system of student finance.

Nick Hillman, who was special adviser to the universities minister in 2012 when tuition fees in England were raised to £9,000, said lowering the income levels at which students made loan repayments was the fairest and most effective way to keep higher education funded at current levels.

Using modelling done for the Higher Education Policy Institute (Hepi), Hillman found that cutting the graduate repayment threshold from £26,000 to £19,000 would result in many more graduates making higher contributions over the 30 years before their loans are written off.

If doing a degree doesn’t get you over £26,000 a year – still less than median income – then you really shouldn’t have been doing the degree. So, lower that repayment limit and get the repayments to bite those lower incomes to further dissuade people from doing degrees that don’t add value.

Of course, this logic then leads to a truly interesting proposition. Anyone who does a degree and makes less than median income – say – should have to pay back all of their loans without any discount, while those who go on to make fortunes should not have to pay anything back at all. Of course, that’s not going to happen but it’s fun to contemplate…..

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Michael van der Riet
Michael van der Riet
1 month ago

Erratum for you really should have been doing the degree read you really should not have.

Pat
Pat
1 month ago

I think a student who has been miss-sold an education should be entitled to compensation in the same manner as someone miss-sold insurance.
18 year olds have, by law, no experience making a living, nor in debt management. The colleges should understand the prospects arising out of any course they offer, and the suitability of any applicant for that course. At present their incentive is simply to sell as many courses as possible, they face no downside.

David
David
1 month ago
Reply to  Pat

Sounds good if a certain percentage of students can’t pay back their loans – make their unis do it. That would really solve the problem. As bad unis would cease to exist. Making people who can’t afford to pay something pay it – doesn’t really work.

Esteban
Esteban
1 month ago

There was a big row in the U.S. many years ago – credit card companies were allowed on campus to sign up students. Then somebody noticed that they were approving cards for those in engineering, business, law, medicine, etc. Not so much for gender and grievance studies. The unis had a fit, how dare you draw attention to the financial implications of different areas of study?

Spike
Spike
1 month ago

I’m afraid these good solutions assume that those in power want good solutions, as opposed to contriving ways to stay in power forever. They WANT kids studying grievances and preconceived notions, want them bogged down in debt and motivated by promises to cancel it, and (especially when they cut out banks as an intermediary) want the power to pull the financial plug on certain private colleges. (At which time they cited dodgy stats on post-degree employability—what irony!)

David
David
1 month ago
Reply to  Spike

But why surely poorer people are less likely to vote Tory?

john77
john77
1 month ago
Reply to  David

That depends upon *why* they are poorer. If it’s because they work in the private sector, then they are more likely to vote Tory. Labour represents the unions, which are predominently Public Sector so the public sector workers became significantly overpaid compared to the private sector during 1997-2010 and there has been a minimal correction since 2010. The (public sector) ONS reports that public sector workers are – even ignoring their strikingly more generous pensions – paid more on a like-for-like basis than their private sector counterparts. It is utterly unsurprising that the large majority of public sector workers vote… Read more »

David
David
1 month ago
Reply to  john77

I was talking about people who are poorer because they studied something useless at Uni. Someone working on minimum wage after 3 years at Uni is unlikely to vote for the Government who encouraged them to study at Uni.

john77
john77
1 month ago
Reply to  David

The government that decided that half of all teenagers should study at university when only one-quarter (or less) of the jobs needed the knowledge imparted at university was led by Anthony Charles Lynton Blair, an ex-Public Schoolboy lawyer married to an extremely rich barrister. I must, however, inform you that he was not a Tory.

David
David
1 month ago
Reply to  john77

True but we have had Tory Governments for 10 years now – and you would have thought that they would realize that the current Uni system is reducing the number of Tory voters in the future.

john77
john77
1 month ago
Reply to  David

Six years: 2010-15 was a coalition government and post-15 they had something else on their minds – but they did make a start on tuition fees as Tim has pointed out.

john77
john77
1 month ago
Reply to  john77

Back in 2010 Vince Cable was very keen on the graduate tax (“student loan repayment scheme”) to which my comment was fair enough provided it is equally levied on himself and me both of whom received means-tested grants to attend Oxbridge. Oh no! It didn’t apply to LibDem MPs

M M
M M
1 month ago
Reply to  David

This has been pointed out elsewhere, but – when progressives win an election they gain power, but when conservatives win an election they gain an office.

Quentin Vole
Quentin Vole
1 month ago

I’m sure the costs of many STEM degrees (particularly engineering, physics and chemistry, where lab work is vital) is higher than, say, philosophy or classics (let alone gender studies). Should that be reflected on those who study them?

dcardno
dcardno
1 month ago
Reply to  Quentin Vole

I don’t know where you are, Quentin, but in my neck of the woods (left coast Canada) those degrees *are* more expensive – a future chemist or mechanical engineer pays higher tuition than an English or mathematics student. Business studies are also more expensive – in that case not due to the cost of labs, but the cost to retain faculty; the profs make the argument that they would be “big four” partners if they left, and the university has to pay to keep them. Of course, it’s also what the market will bear on the student side – and… Read more »

Quentin Vole
Quentin Vole
1 month ago
Reply to  dcardno

I’m UK (England), which is where this article refers to, but it’s interesting to hear the differences in BC (I iamgine the US is similar). English students pay the same for tuition, whether to study Chemistry at Oxbridge or Media Studies at some third tier place (the ‘cost of living’ will, naturally, be higher in Oxbridge or London than somewhere more provincial). In theory, unis can charge lower fees, but none of them do. In Scotland all tuition is free (paid for by English subsidies), but only to ‘native’ students. The cost of being ground down under the English jackboot!

Spike
Spike
1 month ago
Reply to  Quentin Vole

In the two state universities I attended, tuition was by credit-hour (generally the number of hours per week that the class met), certainly with no schedule for the price to vary by department or degree program. Chem-lab fees and textbooks might vary in costs. The faculty union would strike if the Prez implied that one discipline was less worthy than another.

Andrew M
Andrew M
1 month ago

Tie the repayments to the university’s pension scheme. If your graduates do well, your pension is secure. If your graduates earn less than £26k, your pension is screwed. That ought to concentrate minds.

SMB
SMB
1 month ago

Your idea won’t have much effect with income contingent loans, like in the UK, Australia and New Zealand. There have been plenty of studies of past changes to the cost of degrees, both up-front and changes to repayment schemes, that show they have little effect on students’ choices.

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