MILLIONS STRUGGLING TO REPAY “WEIRD” LOAN WILL CREATE “ECONOMIC CRISIS” IN YEARS TO COME
The president of the National Union of Students has warned that graduate debt is a ticking “time bomb” that could have a huge impact on the national economy in years to come.
Liam Burns told today’s Metro he is concerned about the long-term impact of student loans. Although students have decades to repay their debt, he expects many to be keen to wipe the slate clean as soon as possible, even if that means delaying buying a house or having a family. He said:
“As we put people more into this sort of pseudo-debt, this weird sort of tax/loan financial product, are folk going to get on the housing market or are they going to try to pay off their tuition fees instead?
“If you on paper have £40k next to your name, there is a tendency for people to want to pay that off. That doesn’t make any rational financial sense because the terms and conditions of a student loan at the moment are so safe that it’s not rational, but we’re not all walking spreadsheets.
“I think there are lots of unintended consequences. We are creating this economic crisis, we’re sitting in a bubble.”
Graduate Fog shares Burns’ concerns that the practicalities about the repayment of graduate debt has not been properly thought through.
As we know, many graduates who left university in the last few years are still struggling to get their careers started and secure a decent salary. With wages low and the cost of living at an all-time high, saving for the future is almost impossible. Who are all these graduates with extra money lying around to pay off their debts? And these are the ones who haven’t had to pay £9,000 a year in tuition fees, as many of those starting this autumn will. Is it just us, or does this not add up?
Projected figures suggest that the average graduate debt for students starting their course this year will be £53,000 by the time they complete their studies. When the average graduate starting salary is under £20,000 and students must pay 9% on whatever they earn over £21,000, how many years will it take to repay the debt? Maths isn’t our strong suit, but it seems like a very long time…
*DO YOU WORRY ABOUT REPAYING YOUR GRADUATE DEBT?
Or is the debt so big that you almost don’t think about it? How much do you owe – and do you expect to pay the whole thing off? Can you imagine having enough money to buy a house or have a family in the next few years?
I don’t worry about mine. I’m not yet earning the threshold amount, and the terms are as such that I can’t worry about it, or I wouldn’t enjoy life. Living in London, I barely have the money to cover rent and bills, let alone even begin to think about paying off around £21,000 of debt, and having some sort of enjoyable life. At 25, I have no savings, no property (and thankfully no dependents). I’m happy, but I do worry that the situation will be much the same at 30 (except hopefully earning more than £16k)
The only thing that currently concerns me is my overdraft, but I’ll get rid of it, £20 at a time.
Sorry, I have to say this argument is ridiculous. It is an amount so small out of my paycheck I barely notice it. I did not start paying anything back until I was on £15k. Once I get to a certain point in my life and it has not been paid back then it will wipe. If it has been paid back then I will be earning enough not to notice it.
It is slightly annoying to see that people say there are no jobs out there. I have had no trouble. I went to a great Secondary school and got good GCSE results, average A-Levels and then went on to a poor university where I got a very good mark. Even so I have not struggled to find work. The fact is people sometimes have to settle for less at the start of their career in order to get to where they want to go. I am now earning far more money than most of my peers down to the fact I used skills learnt in my degree to go into a completely different career from what I had at first imagined. I am happy, successful and now in management and am only 25. We are hiring too…
What about all the students that never even finished their degree? The dropouts who none the less hold student loans which are unlikely to ever be paid back in their entirety. They may only be £3,000 or so a time, but add these up as the hundred in each university every year and there’s a large amount of money there that’s gone astray in the economy consistently over the last few years.
Surely this level of financing is not sustainable, and only adds to the deficit that the NUS president rightly highlights as a ticking time bomb that will burst in years to come. I don’t see how the concept of student finance has ever been viewed as being a sustainable concept even without the recent downturn. While I fully appreciate the struggle of graduates in ever being able to pay off their debt as many would like to honourably in it’s full entirety, from a financial perspective of the economy in general, what good is it when debts are supposedly written off after 25 years let alone the graduates that have left the country after gaining their degree without leaving any means to ever pay their loans back? £20 a month repayments will never get anywhere – no wonder you hear of students overpaying their loans by thousands of pounds, get some return while it’s available.
Student debt is a big problem as far as I’m concerned and it’s baffled me throughout my degree and beyond that not more emphasis has been put on this efffective but casually approved money pit.
My debt doesn’t bother me. It’s psychologically not very nice to have a debt of almost £30k (thanks to living in London) but the amount I pay every month is negligible. I have had no problems with getting a mortgage and would certainly NEVER think of paying it back early… that seems like absolute madness. Except in some very particular circumstances, I really do not understand why anyone would try to do that.
I do think it’s a timebomb… but for the government/country as a whole, not individual students. I doubt I’ll ever pay mine off; this won’t affect me, but it will affect any nationwide ‘plans’ for the money which was supposed to be repaid.
Kayleigh ~ I’m one of those people who left without completing their degree, my friend did the same too. I owe £3000. The figure is probably huge, but I guess that isn’t our problem. I’ve considered paying it back using a bit of my savings (i’ve amassed a fortune thanks to living at home), but other than the interest it’s gaining I don’t see much point. If I return to complete another degree i’ll get rid of it, because then my repayments won’t start until i’m earning over £21k, and tbh there’s no point in even going to uni if I don’t hope to earn that much.
£30,000 is an incredible amount of debt 😮 I’m sweating over owing £15,000-20,000. The government doesn’t get it, yes students don’t have to pay anything upfront and the rate of repayment is relatively low, but they still owe that money and most will never pay it off. Under the new system I think outstanding debt is written off after 30 yrs.. not sure about the old system? What if the powers that be decide to change the rules and up the rates of repayment? Since raising the fees they also promised more incentives for new students.. haven’t seen much of that either.
I’m not 100% sure where the £53k figure has come from. I’ve seen it thrown around a few times but it doesn’t really add up. For a 3 year course at £9,000 tuition fees a year and then £4,000 maintenance loan each year adds up to £39,000. So the £53k seems a little exaggerated. Unless i have got my maths wrong. Seems to be a bit of scare-mongering.
@Gary That £53,000 comes from Push – and it includes debts accrued from living expenses during study, as well as tuition fees.
What does anyone else think – does it sound too high?
£53k sounds too high.
I personally wouldn’t say that £14k over three years would come from living expenses during study unless you literally never work. Most students have a part time job, so I don’t think that’s a practical figure for the majority – perhaps a “worst case scenario”, though…
Even with an overdraft of maxmimum £2,000 (from most banks) means that total debt could be £41k which means £12k is unaccounted for. That’s £4k extra a year, which is ridiculous.
£53k maybe closer for students who study for longer – i.e. postgrads, medicine but not for a standard 3 year course student. This is just a headline figure to create outrage and scaremonger. Not sure that’s what should be told to prospective students. Obviously they must think more deeply about their choice of University and Course but we musn’t forget the non-academic value of University – living independently, meeting people from different backgrounds and becoming a much more rounded and open minded person.
Living independently and becoming a more rounded person sounds a great experience, though I never got to experience that as I lived at home. Starting to wonder if I should wait another year to go and study or just go for my local university again.
@Richard personally i would never go to University if i was to live at home. But some people aren’t able to move out for varying reasons. If you can though, definitely move away. You miss out on so much if you don’t.
Actually, I think the £51k figure is fair. As a science student, I very much doubt many of my former peers had time for a part time job. @Craig, are you talking about arts students who are more flexible in their lecture hours or do you know science students, i.e. biological sciences, chemistry, medicine, physics, engineering, other lecture/fixed timing degrees that do a part time job, as timing makes it difficult if impractical?
Sorry, I don’t mean to be harsh, but I am bit worried about under and over estimating the debt problem.
I don’t really know what to say about non-academic value of university. I am concerned that this is used as justification rather too much. This is quite complex and difficult debate, and I also don’t want to scare people off university, it did broaden my horizons.
However school leavers and mature students are making big decisions about the rest of their lives and should be able to make mistakes.
However what skills you learn, the work experience you have and the degree you do, i.e. are your skills in demand is also very important.
@Thomas
I’m talking about all degrees. My timetable was quite low-maintenance, but outside work was ridiculously high-maintenance. There wasn’t a time that I wasn’t reading – except when I was in work.
My friends on STEM degrees didn’t seem to suffer too much because of it. If there’s time in the day or night, there’s time to work.
Only my overdraft matters as far as I’m concerned. I never think about the student loan, and think of it as a tax in practice. I’m on around £14K and my threshold is around £15K (I think it’s slightly higher now). When you’re just over it, it’s 9% over the threshold, and I’ve heard fo most people it’s barely noticeable. Interest is roughly inflation, and after a couple of decades it’s written off.
The new threshold of £21K with fees of £9000 a year plus living costs is just insane if the government expects much of it to actually be paid back.
I think you all need to look at the bigger picture! This is how the Government is able to sell it you… day to day it just seems like pocket money but essentially, we are being asked to find 20g over our lifetime to pay back on top of your mortgage/rent and day to day living costs. We will spend the next 20 years with deductions to our salaries. It is really naive to look at this from a short term perspective but alas, that is what Government expects people to do and how they have gotten away with this. I doubt 5/10 years down the line you will feel the same way. I’m actually quite shocked by everyone’s stance here, I think Liam Burns is completely right that these loans are a ticking time bomb!
@Lisa I don’t think everyone is looking short term. I’m 100% confident i will earn more money over my lifetime by going to University than if i hadn’t. If not i wouldn’t have gone. Even if i had to pay £9,000 tuition fees i would still go as i know the value – short-term and long term. The connections i have built at University will ensure i earn more money than if hadn’t – never mind the education i have received as well.
I don’t think you’ll find I’ve denounced the value of a university education. I went to university in the want of pursuing further education not, ‘how much is this degree going to make me’ and ignoring the financial costs (I could barely afford living costs but I still went!). What I am against is the economic impediments this Government is enforcing to gaining a university education! I personally would still go to university on 9g tuition fees but that’s not the point. The point I am making is the added financial burden now created in going. To me, education is an unqualified good but unfortunately, this doesn’t seem to be the case any more. Not forgetting these tuition fees stop many pursuing a Masters and beyond…
These tuition hikes are just a massive disgrace, when they were first enforced the MP vote was negligible as so many of them were in that position because they went to university for free or even paid to go if they came from poorer backgrounds. I am pretty much like a lot of my graduate friends, we get on with it by just looking at your student loan like a number, that it’s not even a ‘real’ debt. I actually laughed when my letter came through and last year my payments barely touched the interest I’d accumulated that year. It does make you think, say if your average earnings are 20 – 25g, I’d guess over 20 years that amounts to 10g paid into a black hole of debt. That’s your money, that’s something that will make a difference to what mortgage you can afford or if you can manage any savings on top of that! Remember, not everyone who graduates will go into high earning careers, teachers etc.
I’m not denying that it isn’t a great situation. I too agree that education is a public good which can’t be provided for adequately by the private sector but scaremongering about high fees and being unable to ever pay the debt back is very damaging. The last thing we want is great students from poorer backgrounds being put off University because of such articles/media coverage.
I know if the government hadn’t put the fees up the students wouldn’t be put off but this is the situation we are in. I don’t think we should be making it worse.
I don’t think it’s scaremongering but I would say what is happening is those from poorer backgrounds would find it psychologically difficult to grasp the concept of starting out in life with such a large debt. I have spoken with young people from sixth form, who already need to work part time because their parents can literally not afford to give them anything. Money is already a big deal to them and to them it is not just a number. I can see where you are coming from, I would still encourage somebody to go to university whatever their background but it’s is difficult to escape from the realities we are being put in and you would hope this does not put gifted but poorer students off but unfortunately that is a reality we are already seeing. (http://www.guardian.co.uk/education/2012/sep/10/university-admissions-chaos-clearing-numbers-down)
And TBH, it isn’t that hard to scaremonger: leave university with 30g debt… I don’t think there’s any way to sugar coat that?
Is it just me or does something about this just not add up? Tuition fees have been billed as being only tiny payments per month, yet the total debt is a huge amount of money.
Say you get a job straight away after uni, earning above the threshold and pay £100 a month, that’s £1,200 a year. If you pay that for the next 30 years (say, from age 21 to 51), you’ve still only paid off £36,000. If the projected average debt of £53,000 is right, that still leaves £17,000. And that’s assuming no interest charges, which of course there will be.
I’m genuinely not good with maths – if my numbers are wrong, please set me straight? I would really like to understand this better.
No totally agree. But the focus should surely be on everything else you leave university with. You don’t just leave with debt.
When everyone is claiming the value of a degree is decreasing (mainly older people who are jealous/hate the young as they didn’t have the chance to go to university) it would be good to see some coverage on everything that can be gained from attending unviersity as opposed to the debt you leave with. As we have both stated, university is well worth the money we are paying. This should be portrayed in the media.
@Tanya, Surely as your pay increases throughout your career you will pay more than £100 per month??? I’m only assuming i don’t know the ins and outs of it.
@Gary
Okay, so say you pay £100 a month for the first 15 years, you’ve paid off £18,000.
Then you pay £200 a month for the next 15 years, that’s £36,000, which takes you up to £54,000.
Does that sound right? I’m just interested to see it in black and white.
I’m also interested to know where current graduates think all this money is going to come from. I’m 33, so I graduated nearly 15 years ago – and I don’t know a lot of people who could easily have paid £100 out of their paycheque for the last 15 years, and now be able to find £200 a month as we head towards our final 15 years of payment. Have you seen how much rent, travel etc is these days? Not to mention the cost of saving to buy a house, and paying all the expenses involved with having small children…?
I don’t mean to sound like an old fogey, just making the point that it’s not like graduates are rolling in it, even 15 years down the line. And just because you’re earning above the threshold, doesn’t mean you’ve got all kinds of extra money lying around at the end of the month!
I am so glad I went to university, I would never have not gone to university but I don’t find my debt acceptable in any shape or form. Forcing ordinary people to get into debt for education, I just can’t grasp it. How that creates a level playing field, if only.
The Government were either brain dead or selfish, rich pompous twats for introducing fees. I would presume the latter. Creating even more debt for the poor? It actually still perplexes me that this legislation was ever passed through.
The solution is not to find the best out of a bad situation and try and sell the other merits to prospective students, this is a bad situation that needs to be reversed and if Tanya’s maths are correct and if Liam’s prediction turns out to be true, this is not even sustainable.
Ha, according to this article, we are basically f***ed either way: http://www.guardian.co.uk/higher-education-network/blog/2012/may/16/financial-sustainability-universties
@Gary BTW, I’m not against what you’re saying but I think you are confusing two different arguments as one. There is an issue with how university is now funded and there is a separate issue with graduates getting a hard time with regards to what value a university degree has, losing its gold standard etc. For instance, when I was job hunting, I felt the biggest thing I had to prove in job interviews is what an asset my degree is and how it’s helped me develop the skills I have today.
There will always be students who go despite the costs, believe you me, I was one of them. My letter came through for my halls and I looked at my loan AND grant AND bursary and that didn’t even cover the rent let alone living costs. I still went naively having no clue how I would even afford to be in university, all I knew is that I had worked all my life to get there, that I wasn’t going to let money or debt stop me achieving my goal.
Of course, reality catches up with you, I nearly had to take leave as I was forced to choose between using my loan to live or pay my halls (I chose to live). I spent the summer working full time to pay off my debt (and luckily had help from my parents – again, I feel sorry for students who do not have this safety net) and I can’t help but think the same thing with the debt in general, we may be accepting of it now but years down the line, after seeing your wage effectively go down a money pit, not great tbh.
If only I knew for sure that I wanted to do a healthcare degree, then all my tuition fees would be paid for.
Under the new system if you earn £21,000 you pay back £0 a month (compared to £39 under the old system) and so forth. Still, the new debt is far greater so it’s unlikely to ever be paid off. Wonderful.
I don’t know whether to bother any more. Is a geography degree worth £27,000? Dropping out is the worst mistake I ever made, never mind I was depressed, i would have sacrificed my health instead of being a debt slave.
Hopefully, when there is a change in Government, the Liberal Student Tuition Fee Tax will be revoked to a more sensible arrangement. After all, if Student Grants were acceptable for those Politicians who introduced the laws, they can also be acceptable for current generation of students.
Unfortunately, it is difficult for Nick Clegg and the other Liberals who, in advance of the 2010 General Election, offered one Policy Commitment towards Student Finance, and afterwards, adopted an entirely different policy- and unfortunately students will be proverbially screwed.
Great article, I think the same sentiments apply for us now:
http://www.thedailybeast.com/articles/2012/09/27/nyu-professor-are-student-loans-immoral.html
Great conclusion: “Foreclosing the future of young people is a callous act, and a self-destructive path for any society. But allowing Wall Street financiers to feed off their predicament is beyond any moral compass, especially-and here I speak as an educator-when the revenue is being extracted from an activity as honest as the pursuit of learning”
I am a History graduate living in Doncaster, South Yorkshire, and I graduated from the University of Derby BA Hons History 2:1 in 2008, aged 38. I qualified for the full £3000 (thereabouts) loan and about £2000 maintenance grant for each of the three years I was at university. I was unemployed before I went to university and I had a chequered employment history; this meant that I had no savings. I had no mortgage, no partner or children, no loans to pay off. I sold my few possessions and moved to Derby, where the university halls of residence became my home for three years.
In my opinion, you only need to consider basic personal financial planning regarding your student loan, regardless of whether you paid £3000 a year or you are due to pay £9000. Since the student loan for your first degree is not a commercial loan – and, therefore, not given on the fixed assets you currently have or your ability to repay your loan at the commercial rate – different economics must be applied in this instance. At the same time, graduates should only be allowed to alter the terms of repayment when they get a job that takes them over the threshold. I was shocked to learn recently that a recent graduate I was working with in a Call Centre, who was on the same salary as me, of about £13000 a year, had made an arrangement to repay her Student Loan at £100 a month. This is absolutely crazy.
When I decided to go to university, nothing was going to stop me and I wasn’t going to worry how I was going to pay it back. I’m unlikely to get a graduate job. However, I’m doing serious research on the social history of Doncaster, and I intend to write a book in the near future as a way of paying off at least part of my student loan. But its not a dagger hanging over my head. I’m responsible only for my own financial liabilities. Why should I care about the country’s finances? That’s the responsibility of politicians, not graduates or students.
I echo what Ayesha said. I “owe” £27,000 under the new system but it will never be repaid in full. I don’t even think about it.