Student loans – it’s the economy stupid

In this article, IF supporter and father, Philip Yorke, argues that the student loan system affects the whole economy, and by looking forward a generation it is obvious how untenable this funding method will become.

The figures

First, some simple figures from the government’s student loan website and House of Commons Library, higher education students numbers, 21 February 2023. I have looked at the principles working with real 2022/2023 figures, though rounded them for simplicity.

There are approximately 465,000 students per year excluding the 95,000 Scottish students who are under a different funding method. Each student costs nearly £20,000  per year to fund. This is based on £9,250 per student for tuition fees loans & around £10k per student in student maintenance loans . For England, Wales & Northern Ireland each year that totals around £9.3 billion.

For argument’s sake, let us assume that all 465,000 students per year pay back approximately £1000 a year for 30 years. The total amount repaid would be £13.95 billion. If it is ok for the taxpayer to pay for the 45% that is not paid back by graduates then why not 100%?!

A waste of money

We all know that borrowing money costs more than paying upfront. In this case, approximately £4.65 billion a year in interest would be wasted. So, if every graduate earned enough to pay back their loans, that would be £13.95 billion lost to the economy (when loans and interest are included) in disposable income. That is money lost to free market businesses supplying products and services. That is VAT lost to the government, which at 20%, would amount to  £2.78 billion.  So in total that’s £7.43 billion “wasted” (the interest and VAT)!!

It’s our money

Since 2018, the government has been forced to record student loans on the government balance sheet as “public sector net debt” (PSND) and not as an asset to be sold off to the private sector. Whatever modelling is done on recouping some of that money loaned, the reality is that the interest charged is merely wasting the next generation’s money on enforced debt.  That debt is also  always our money – the taxpayer’s money – they are playing with.

Kicking the can down the road

Successive government have talked about the cost of higher education funding to the Exchequer, but never about  the loss to the economy.  Borrowing money is simply and obviously a waste.  It creates 30 years of hardship for young people merely to balance the books year on year.

As with the Private Finance Initiative (PFI) debacle, governments have a habit of kicking the economic can down the road. Why pay less today, when the whole of society can pay more tomorrow?

The economics of “me” or society

There are those that think about the economics of “me” rather than the wider good to society. Wasting money that could be circulating in our economy affects us all. Ironically, David Cameron talked about the “Big Society” but instead created a smaller one, a more selfish one. Funding for students should be a basic social good that benefits all of us. It provides wider society with a public good by investing in the future prosperity of generations to come. Younger, more highly trained generations can serve society better and so the money circulates.

Half baked?

For all those that believe in “me” economics, it is worth noting that 45% of the loans do not currently get paid back. This means that nearly half the loans are paid back through all our taxes. For all the theoretical intent, and however many times the government tries to get income-contingent loans to work, they don’t. In practice the policy is half baked.

Fast forward a generation

The next big issue is what will happen when the next generation wants to start university and their parents are already so highly taxed that they have no savings and/or inadequate pensions, but meet the governments low threshold for contributing to their children’s subsistence? The current policy is based on the assumption that many parents, who were largely educated before the system changed (if older than their mid-50s), can afford to contribute towards their student children’s living costs and do not have their own student loan to pay off. With the loan term extending to 40 years from this September,  grandparents, let alone parents, could still have student debt. Full-time education may well become the preserve of the rich again.

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