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June 30, 2007

Subsidies on Student Loans

Sorry, but why is anyone even wondering about this?

Students face a growing financial burden as universities argue that fees should be doubled and subsidised loans stopped.

Vice-chancellors have told the Government that the present "zero" rate of interest on loans will be unsustainable when the cap on what they charge is lifted.

Of course student loans should pay a market interest rate. In some subjects the value added goes to the student themselves in the form of vastly higher lifetime incomes. As they benefit they should pay, not some muggins on minimum wage subsidizing them through the tax system.

There are also subjects (think males doing Arts degrees here) where the returns to a university degree are actually negative: yes, really, people earn less with one than they would have done with the equivalent years of work experience. No, this doesn't mean that we should thus subsidize these people, it actually means that we should be discouraging them from this course of action altogether: and thus most definitely not subsidizing them.

June 30, 2007 in Your Tax Money at Work | Permalink


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Posted by: Mark Wadsworth | Jun 30, 2007 10:32:34 AM

I understand that the system of student loans that the UK uses comes from teh Australian system. The basis of the systme having very low rates of interest (inflation only, I think) for Aus is that society ultimately derives a profit from this 'investment' through greater tax revenue (because more students are able to study, etc) even after you take into account that some will move overseas/die young/etc.

So the govt takes the view that by investing several billion now, they can increase the future tax revenue by a greater sum. Which I think is probably a good thing.

But I'm not sure if the system is exactly the same in the UK.

Posted by: Ian Deans | Jun 30, 2007 11:08:35 AM

Interest is definately levied on student loans, in my first year of fleeting contract work following graduation my student loan repayments only just about covered the interest for that financial year.

Posted by: Andrew Paterson | Jun 30, 2007 12:05:03 PM

Ignoring Ian's point that "that society ultimately derives a profit from this 'investment' through greater tax revenue", do you agree that, as we expect students to earn more after they graduate than non-students, the threshold for student loan repayments should be set at a level equal to, or higher than, the average yearly wage of a skilled worker?

Posted by: TMN | Jun 30, 2007 2:34:28 PM

AP, the "interest" you paid was equal to the RPI rate of inflation. So your "real" rate of interest, as the economists say, was zero.

Posted by: dearieme | Jun 30, 2007 3:10:32 PM

Thanks dearieme.

What we really need is competition on the provision of student loans, the current company is a joke. I haven't received a balance for 05/06, yet alone 06/07.

As a side note, did you know that Inland Revenue holds ALL student loan repayments for the financial year and only pays them to the Student Loan Company once the year is out?

Posted by: Andrew Paterson | Jun 30, 2007 5:58:41 PM

AP, your side note means that, depending on the detail of how the calculation is done, you may in fact be paying "real" interest, whatever the terms are claimed to be. Lying, thieving Gordon Brown?

Posted by: dearieme | Jun 30, 2007 6:23:08 PM

There's nothing wrong with males doing art degrees. There's more to life than being a factor of production. As a nation our popular culture is infantile and pathetic. It really is in a very sorry state. Stupidity is part of the dynamics between people, and might as well be on the UK citizenship test (excuse me while I prepare for a fight in the pub car park because I don't like the Spice Girls). More arts graduates please!

Posted by: Opinionated | Jul 1, 2007 12:08:32 AM

for clarification of the position on student loans.

Posted by: Francois | Jul 2, 2007 12:33:21 AM

Placing commercial rates of interest on student loans would cause real problems for students intending to take graduate positions in careers where the attraction is vocational rather than financial - teachers and nurses spring to mind.

Posted by: Aardvark | Jul 2, 2007 10:03:27 AM