Should graduates pay back double their student loans?

The BBC says a student borrowing £13,000 a year could end up paying back £80,000. But is that really so much, over a career?

by Emma Haslett
Last Updated: 06 Nov 2012
The BBC has been stoking up some student loan controversy this morning: according to sums by ‘leading accountants’ commissioned by the Beeb, once the new rules on university fees come in next year, a grad borrowing £39,000 to fund their studies could find themselves forking out as much £83,000 to pay it back, i.e. more than twice what they originally borrowed. Inflammatory stuff - but given that the average graduate earns £100,000 more as a result of going to univeristy, perhaps it's not unreasonable...

The maths involved is rather convoluted for MT’s pea-sized brain, but it goes something like this. Say a student takes out a loan that covers the hypothetical £9,000 per year to cover their tuition fees, plus a £4,000 maintenance loan. Under the new system, once their salary tops £21,000, they then have to start paying it back, forking out 9% of their earnings for up to 30 years.

Apparently to the number-crunchers, a student who starts their career on average earnings and gets a £1,000 pay rise each year will pay back £78,882 over that 30-year period (after which the remaining £14.5k gets written off). but a student that gets a £2,000 a year pay rise over and above average earnings will shell out £83,791 in cash terms over 25 years, which would clear the debt.

That sounds like a lot. But the fact that these calculations don't take inflation into account make the figures a bit misleading - after all, the value of an £80,000 debt will probably be very different in 30 years' time. (Interest on the loan will be charged at the rate of inflation for lower earners). And not many banks would write off the remaining debt after 30 years - so as loans go, these are still pretty good terms.

What's more, we shouldn't lose sight of the fact that university still pays. As universities minister David Willetts points out, graduates can expect to earn about £100,000 more over their careers because of their degree. So you could argue that it's not unreasonable of them to pay for that themselves, rather than the taxpayer doing it. And the new system is set up so that the financial burden is smaller at the beginning of people's careers, when money is likely to be tighter.

Perhaps it's just a question of branding; as John Humphreys pointed out in this morning’s Today programme, this is, to all intents and purposes, a graduate tax. If the Coalition had just called it that from the start, would they be getting less flak? It's hard to know.

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