University is not cheap. Starting with this obvious statement seems like a no-brainer, but a lot of people underestimate just how much students are going to have to spend on University education.
Currently, you’ve got a maximum of £9,000 tuition fees, accommodation fees of between £3,500 and £5,500 a year and then, on top of that, living expenses, textbooks, other administrative costs…. The list is endless.
The bottom line is that many students will leave university with massive debts. Some students have a portion of their loans offset with grants, bursaries and scholarships, but this is definitely not indicative of everyone and it very rarely covers everything they have to pay out.
For many years, students have gone to the Student Loans Company (SLC) to get financial support. They offer loans to cover the cost of fees and then have other loans to help with living expenses (though the generally accepted notion is that students will have to pay some of their own money out too.)
The SLC is operated by the government and the loans given are not tied to your credit profile, meaning that defaulting on the payments or having it written off doesn’t adversely affect you.
The money is paid back in instalments once you’ve graduated and earning a certain threshold – in April 2014 the figure will be changed to £325 a week, £1,409 a month, or £16,910 a year. On that, you pay 9% of what you earn over that total. Therefore, if you earn £350 a week, you’re £25 over the weekly threshold. 9% of £25 is £2.25 a week in repayments. Rather simple and very flexible, as you can see.If you haven’t paid the loan off within 25 years, the government automatically writes the total off.
The total amount that the government will actually receive from students is a source of controversy – and this week it erupted again when the Public Accounts Committee argued that the government ‘overestimates’ the percentage of student loans that will actually be paid back.
Currently, there is believed to be some £46bn of outstanding debts from the SLC, a figure that will rise to a staggering £200bn by the time we get to 2042 – I will be nearly 50 and will have either paid off my loan or had it written off by then. Now, the government has an estimated figure of the percentage of these loans that they will never see again – currently this stands at 35%-40%. The PAC has claimed that this number should be around 42%-48%. This, at worst, would represent an extra £16bn of unpaid debts if you look at the 2042 estimate. At best, it’s still £14bn.
The report, published late last week, claims that in the 24 years of the SLC, there has never been a “reliable model for forecasting how much will be repaid to the Exchequer.”
Indeed, the PAC Chairwoman Margaret Hodge also said that the SLC should publish “clear and easily understood annual forecasts of what it expects to collect in the year ahead.”
All of this seems rather damning for not only the SLC but the government too, who both appear to be under a fair bit of pressure when it comes to the mathematics of loans. If true, it is another sign that the system is a complete mess.
The report also adds that collecting loan repayments has not gone to plan, especially with regards to collecting debt of graduates who have moved abroad or “slipped out of contact.”
The report also criticised the premium-rate phone numbers used for contacting the SLC and for the IT systems, which are frequently beset by problems.
So what’s been the reaction to all of these findings? Well, the SLC has conceded that there is indeed room for improvement in the collection of payments and that the forecasting method was being improved also. However, it doesn’t seem to have pleased everyone.
- Vice President of the National Union of Students Rachel Wenstone argued that graduates are going to be paying back twice, both in their loan repayments and as taxpayers later in life as they continue to prop the system up.
- Universities and Colleges Union representative Sally Hunt backed this up, saying that taxpayers may end up footing a greater bill than before universities were allowed to charge far higher fees.
- The shadow Universities Minister Liam Byrne argued that “it is now clear that universities are sitting on flimsy foundations. We now need urgent answers on how they’re going to fix this £80bn mess which our country cannot afford.”
Am I surprised by any of this? Not really. My only experiences of the SLC have been difficult and badly organised, taking many months to work out that I need a course code changing to make sure I get enough funding for my degree. There’s so much bureaucracy in the system with getting students through that I’m not even slightly shocked to see that they can’t forecast anything properly.
It does make me wonder – are they desperately over-optimistic about who might earn enough to pay back? Of course, you could make the argument that if you went to university and didn’t earn enough to pay it all back then I would question the decision to go. University opens up a lot of doors and potential opportunities that I think graduates would be fools to ignore them.
That said, it doesn’t disguise the fact that the system has got a lot of problems. Not only that, but it also shows the clear attempts by the government to politicise the system – making this part of the budget in such a way that failure to correctly forecast means large holes in the public finances.
The solution? Well, that’s not easy. I mean, we could scrap the system and ask students to front the cash themselves but I think that’s the worst idea out there. It would make a well and truly elitist system.
The system needs to be simpler, better at getting repayments made. Furthermore, the government has to help students when they graduate so that they find success (and the money can be repaid), rather than just taking their money as they struggle on in a stagnant market.