Student Loans

 Student Loans

I was lucky. In my day (1961-1964), a 3-year undergraduate degree was provided free to those school children who were believed to be able to benefit from it. The state (in my case the UK) provided the universities with enough money to put on sufficient courses. And the state (or the county) provided means-tested grants that provided just enough money for needy student to feed and house themselves for each academic year of 30 - 40 weeks. Mine was a pretty average family, with one parent writing a book and the other working as a G.P.; but I and five siblings each received the full student maintenance grant for our 3-year courses.

The state wanted so many doctors each year and got them, so many scientists, so many teachers, so many librarians, artists, etc.;  and they got them. Each year a new cohort of school-leavers found places at university, and a new cohort of graduates found jobs. Firms toured around the better-known universities like wasps round an open jam-jar, desperate to snare the best talent. 

Then some wretched government, wanting to bribe the electorate by lowering taxes, found that there was no longer enough central government money to pay for the university places; and a short-sighted boffin suggested charging Student Fees. 

It is argued that a university degree confers a benefit on the graduate. That is not contested. But it also confers an enormous benefit on the state. With a healthy university system we can staff our hospitals, laboratories, workshops, class-rooms (etc) without needing to bribe people from other countries. I have not heard much about the benefit to the state from a healthy university sector. (On the other hand, I have heard that the university sector in the UK is in an unhappy condition.)

There is some talk about fairness. That it is unfair for the state to give, free to able school-leavers, a means of earning more than less able ones. It is certainly not equal, but it may be fair, if selection is handled fairly and without prejudice. 

The thought of going into considerable debt (e.g. £30,000) at the beginning of a working life may put many able school-leavers off studying for a university degree. 

Suppose the median annual pre-tax salary in the UK in 2025 was £40,000 (actually £39,039), and that of non-graduates was £30,000 (actually £29,500). Suppose, therefore, that the median annual pre-tax salary of graduates is £50,000. (This is a guess.)

It must be obvious to many people that graduates will therefore probably pay more tax than non-graduates, and that this might be sufficient to pay for the university course; and to pay by that means for a free education (for suitable candidates). So I did some calculating, using data on the salaryaftertax.com website.

                        Pre-tax(£)   After tax(£)     % tax   Tax p.a.  Tax (30 years)
Non-graduate:        30,000           25,120   16,3        4,880      146,400
Graduate:                50,000          39,520    19.2      10,480     314,400

It is clear that, in a working life, the graduate is indeed paying for her/his tuition, many times over, simply in the familiar and accepted progressive tax system. Over a 30-year working life, the graduate (on average) pays £168,000 more tax than the lower earning non-graduate; more than twice as much. 

If the government wants the cost of the education paid up-front rather than when its fruits mature, perhaps we could allow them to offer a loan scheme. But to charge interest on that loan at greater than RPI seems simply greedy; in fact usurious. 

But I would prefer, as fairer, the system of my youth.

Comments are welcome, direct to cawstein@gmail.com