The student loan is a 9% graduate tax – it shouldn’t be a feared £50,000 debt

By Jack Taylor

Deputy Politics Editor

The popular commentary on the student loan is that it’s a burdening £50,000 debt. Politicians on both sides have turned student finance into a political football, to the detriment of those potential students that need student finance the most. In reality, our level of debt taken from going to university isn’t the issue, ironically its that we are not taking enough.

Politicians, on both sides, have turned student finance into a political football

Every student will tell you going to university is expensive. Here at Durham our gowns cost £50, JCR fees are at least £100 and a train ticket to the South West, where I live, can be as much as £120. However, a typical student is helped financially by their termly maintenance loan, meant to cover the costs of living at university. It can be as much as £8,700 or as low as £4,054 a year.

Over a three-year course this will leave a student on the maximum loan having borrowed a total of £53,850 and those on the lowest £39,885. This is all before we even consider the ‘inflation + 3%’ interest rate.

Of course by definition, a graduate leaving university owing the Student Loan Company money is in debt. However it doesn’t act as traditional debt, as other loans do. Most students know that they don’t have to start paying it back until they now earn over £25,000. You then repay 9% of anything you earn over £25,000. This is only for 30 years, after which it is wiped, and it plays no bearing into your credit score.

This being said, if you earn £30,000 a year after university for the rest of your life, which is over the average graduate starting salary, you’d pay back only £13,500 of your undergraduate loan, at a rate of £37.50 a month. This isn’t the financial chain around your neck those in Westminster make it out to be during elections.

The best way for us to think about the student loan is to take the view of Martin Lewis, of Money Saving Expert. He devised this table to show the increase in the effective ‘tax’ you pay. Doing this accurately reflects the true cost of going to university, its an additional 9% tax on earnings over £25,000. Only those that graduate to a salary of £40,000 or above, that increases with the rate of inflation, will pay back their entire student debt and interest, according to Lewis.

That should be how politicians market it, how its explained as we apply to university. Our student loans are not a £50,000 debt that demands huge repayments such as in the US.

Our student loans are not a £50,000 debt that demands huge repayments such as in the US

Of course no politician is going to campaign calling student finance a ‘Graduate Tax’. Labour wouldn’t risk the youth vote with such a claim. Corbyn said, in an NME interview during the 2017 election, “there is a block of those that currently have a massive debt, and I’m looking at ways that we could reduce that, ameliorate that, lengthen the period of paying it off, or some other means of reducing that debt burden”.

Whether or not Corbyn was hinting to scrap student debt has been hotly debated since, but Labour gained the vote of 66% of 18-19 year olds and 62% of 20-24 year olds according to YouGov, using many other youth-centric policies to gain support. To properly sell student finance, as the tax that it is, would cost votes. No party that wants power would do that. If there was a culture of the student loan being a tax that will never, for 83% of graduates according to Martin Lewis, be paid back in full with interest then Labour couldn’t use student finance as an attack on the Conservative Party and the Liberal Democrat’s record. It’s in the interest of politicians to keep debt as the focus of student finance policy, its large amounts of money that can be used as fear to gain votes.

To properly sell student finance, as the tax that it is, would cost votes.

This is to the detriment of potential students, especially those from low-income families. The Institute of Fiscal Studies found that one in four low-income families are either behind on debt repayments or spent 25% of their income on debt repayments, whilst a third of the poorest homes will be under net debt (owing more on plastic or in overdrafts that they hold in savings).

These are households where debt is a living fear. The UCL Institute of Education reported that increased tuition fees and student debt was putting students off applying. Professor Claire Callender stated “Working-class young people are far more likely than students from other social classes to avoid applying to university because of debt fears”. She also explained that even when those students had the same grades as wealthier students, they were less likely to apply.

If politicians continue campaigning by calling student finance a ‘massive debt’, it’ll be to the detriment of the very students they want to encourage into university

If politicians continue campaigning by calling student finance a ‘massive debt’, it’ll be to the detriment of the very students they want to encourage into university. Gordon Marsden, Labour’s shadow higher education spokesman said in 2017 “this government has focused on increasing the debt burden of students from disadvantaged backgrounds”. This doesn’t help the fact that the working-class is generally underrepresented at universities; it’s a fair criticism of government policy but one that doesn’t explain the intricacies of the loan. Of course tuition fees go against Labour’s principles – Corbyn would always try and legislate for free tuition fees so that university can be fully open to all financial backgrounds, but the current system still somewhat allows for that. The difference is that you start to contribute back once you start earning a good salary, and pay progressively more as you become more financially successful.

However, by focusing on student debt, the real issue of student finances has taken a backseat to our legislatures. It is the level of maintenance loan payments that makes university truly inaccessible. There could be as much education on the repayment scheme and change in culture to accept repayments as a graduate tax, but the finances simply don’t add up for some potential students.

Now on paper, someone from a family that has a combined parental income of below £25,000 would have £1,278 left after paying for catered college accommodation in Durham, as shown in the below table.

The £400 pounds left a term would leave about £40 a week for social activities, transport and other living costs. It’s achievable but not enough to have a typical university experience. Those from all income brackets above £25,000 would definitely struggle to live and study at Durham using only the maintenance loan, only those from household incomes up to £35,000 would actually have money left over after paying for accommodation.

This leaves most parents footing the bill or students having to work considerable hours in a term time or the holidays to support themselves, losing out critical time for university work.

This is the issue we should be talking about. Granted, many politicians have made light of the situation. David Lammy, the Labour MP for Tottenham, has attacked the Conservatives in the past for scrapping the maintenance grant, that made up the difference in student loan for those from a low-income background. Those grants would’ve allowed students from more financially restricted backgrounds to have what could be considered the typical university experience.

Another answer would be to increase the amount of maintenance loan available for everyone. With it being a 9% graduate tax, that only 17% will fully pay off, an increase in the total amount borrowed will not increase monthly repayments. Let students take the money to cover their accommodation and living costs, so that it doesn’t matter what background an individual comes from. It’s not just those from low household income families that can struggle to find the money for universities, consider a family with a combined income of £60,000 but that have to pay an expensive mortgage and have multiple children to support through university. It’s time to stop judging a students ability to pay for university by their parents incomes.

Of course this doesn’t address the huge cost of going to university, especially here at Durham. The first year college catered accommodation is £7,422, whilst Oxford’s most expensive college, St. Edmund Hall, is £6,409 and Newcastle is as low as £84 a week for self-catered. However, if that is the cost to attend university, all should have the ability to pay it.

London already has its own level of student loan, would it really be that difficult to allow students to take what they need?

This just goes to show that a one-size fits all maintenance loan system leaves large differences financially in students around the country. London already has its own level of student loan, would it really be that difficult to allow students to take what they actually need?

Finance is only one of the boundaries in attending university. There is still a perception of elitism at our top universities, reports of classism and a wide difference in GCSE and A-level results across the country. However, if this boundary were to fall, it’s certain that we can also change the others. A change in our perception of the student loan itself could help in the widening of access but an increase in available loan would go so far into making our elite universities open to all.

 

@JackPeterTaylor

Photograph by Xbxg32000 via Wikipedia Commons

 

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