How Do You Solve a Problem Like Student Finance?

Piggy banks with a degree and graduation cap representing student finance

This year on A-Level results day, few students would have been immediately aware that the Department of Education confirmed the increase in interest on student loans to 6.1% from this autumn, or the long-term consequences of this. With all the joy, heartache, and fear, the shadow of student finance would have been the last thing on their mind.

But as it stands, students entering higher education this year can pay above £9,000 for their degree, excluding living costs. With maintenance grants scrapped for lower income families, an extra loan can be taken out each year to fund accommodation, food, and daily living expenses. Yet, the system remains highly flawed, and none of the changes the Conservatives introduced since legalising the £9,000 tuition fee have come close to fixing the gaping problems of debt, the elitism of further education, or the long term problems graduates face navigating taxation and the housing market.

“It would take 68 years for the average graduate to pay back their debt.”

This years’ graduates, who paid fees of up to £9,000 a year, on average will leave university with £44,000 of debt, a dramatic increase from £16,200 of debt for those who graduated five years previously. 9% of any income earned over £21,000 will be paid back to the student loan company, so if a person earns the UK national average salary of £27,500, they will repay just £48.75 a month. At this salary, it would take 68 years to pay back £40,000 worth of debt. With student debt cancelled after thirty years, it is easy to understand why 70% of students who left university last year are expected to never finish repaying their loans.

This may not seem excessive or cruel, but this scarcely provides an accurate or comprehensive portrayal of student debt after university. Indeed, the real concern hardly explored by government officials and the Student Loans Company is the detrimental effect this debt will have on the ability to obtain a mortgage. Student loans do not damage credit scores, but, as Sebastian Burnside, an economist at NatWest explained, “Affordability checks done by mortgage lenders look at the borrower’s free income, after deducting loan repayments.”

The number of young people that can afford to buy houses continues to fall as rising house prices, falling real wages, and increasingly conspicuous mortgage lending criteria make obtaining a loan increasingly difficult for first time buyers. By 2030, only 46% of people aged 25-44 are expected to mortgage a home. Depressingly, current trends suggest that the most likely way to be able to afford a house will be through inheritance, which makes buying a house a possibility only for those with rich family members. 

Undeniably, then, the real cost of a degree is the increased tax burden of 9% added to income tax. With other bills, a severe lack of expendable income, difficulty saving long term, and the inescapable reality that the hoover, washing machine and cooker breaking all at once, this makes owning your own home is an increasingly futile ambition for graduates.

All isn’t lost, if it can be believed that graduates earn more than non-graduates. Yet, with most graduate jobs being centred in London, where rent and daily living are eye-wateringly high, student loans become a far heavier burden almost immediately for many graduates than ever comprehended by Government.

“If Student Finance England was my best friend’s boyfriend, I would tell her to run away and never look back.”

In a free-market economy, the advantages of higher education, and the ‘choice’ to attend university, has a value that needs to be paid. Where that burden is placed is heavily debated. Whether or not you believe that the burden lies with the graduates benefiting from a university degree, it remains extortionate to pay 6% interest on student loans, when the current base rate is 0.25% and the average base rate for a mortgage is 2-3% interest–especially when that 6.1% interest rate is not what current students and recent graduates agreed. Other finance companies certainly would not be allowed to change the terms and conditions after a loan had been taken out so drastically, and Student Finance England has gotten away with it scot-free. 

The reality of this can be seen when Simon Crowther’s open letter to his MP went viral earlier this year, after his loan repayment suddenly rose up to £180 a month.

Crowther accurately explained that students “feel we have been cheated by a government who encouraged many of us to undertake higher education, despite trebling the cost of attending university”.

“I was still in sixth form at school when I agreed to the student loan. I had no experience of loans, credit cards or mortgages. Like all the other thousands of students in the UK, we trusted the government that the interest rate would remain low – at around 0%-0.5%.”

Young people, faced with deciding their future, and after years of being told to listen to their education system, feel trapped and helpless in a loans system they did not vote for, and are continuously told to trust despite its uncertainty. If Student Finance England was my best friend’s boyfriend, I would tell her to run away and never look back.

With this in mind, it is hardly surprising that Save the Student recorded that half of students had reported that money worries were affecting their mental health.

“To the Tories, the student is a consumer and the ‘tuition fee’ is the price they must pay.”

The reality of the problem is apparent when the attention is turned to Westminster. The Conservatives, who have dominated the change to student finance, are set on the commodification or ‘Americanisation’ of education. To them, the student is a consumer and the ‘tuition fee’ is the price of their ability to choose this option. 

The more moderate choice is a graduate tax. This remains similar to the current system in the sense that repayments are a tax rather than a loan, and graduates who earn more will pay back more than less affluent graduates. Leaving education free at the point of delivery would certainly have important implications for the accessibility of further education, namely for low income families as no money is promised up front; but there is currently a limit to the amount graduates pay, which isn’t certain under a graduate tax. This could lead high earning graduates to search for jobs abroad if it meant they could not be taxed the full amount. Undoubtedly, moderate supporters of the graduate tax like Owen Smith and Ed Milliband have failed to create an inspiring narrative around the graduate tax as a means of promoting education as a right.

Corbyn evidently captured the youth vote in part by highlighting the faults of the current system. The Labour manifesto promised to abolish tuition fees, but had no direct stance on wiping the current student debt – worth £100 billion–which later caused controversy for the party leader. Nonetheless, much like the unforeseen implications of a graduate tax, Labour’s approach also needs to answer the question of where the burden for further education should be placed.

What is evident is that the current system does little to fight the inequality of higher education. Even with universities charging more than £6,000 having to encourage students from poorer backgrounds to apply, token gestures by the top universities mean that since the abolishing of maintenance grants the number of working class students studying at the top universities continues to fall.  Cambridge, Oxford and Durham all fall far below the national average of state school students. Durham was the second worst university with just 60.5% of its total intake coming from state schools, making it difficult for working class students to achieve at these institutions.

An effective solution will not be apparent for a considerable time, but the importance of maintenance grants and a stable payment fixture continuously fail to be acknowledged by the current government. Effective reform is needed soon for the long term sustainability of a world-class education system, and its responsibility to to solve the long term problems we face in the next century. That doesn’t mean the path to reform is easy. Promising to raise taxes can’t be a dependable fix-all solution for the immediate term; and shortening degrees is a laughable solution. Cutting student numbers must not mean discouraging working class students. The questions and problems will continue to be debated, it seems, much to the expense of this generation’s’ graduates.

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