The problem is not just the quantity of debt students can accumulate.
Nor is it just the high interest rate applied to student loans, which takes full repayment further out of reach for most graduates.
The real problem is that many graduates never earn enough to pay back these loans and those that do are taxed at rates unacceptable elsewhere in the labour market.
As this paper outlines, a tenth of current undergraduates will earn less than £25,000 a decade after they graduate. They will not be paying off any of their loans, even ten years after leaving. A total of 83 percent of student loans will now never be paid back in full. At the same time, those graduates that are paying back their loans can face a marginal tax rate of up to 51 pence in the pound.
This is an uncomfortable truth for policymakers who argue that current student loans are justified by the benefit to graduates’ earnings potential.
For many at university, and many who have already graduated, university is simply not going to be worth it economically – either for students saddled with debt they cannot pay off, or taxpayers who end up paying it instead. Indeed, nearly one in five graduates are no better off after five years than if they had chosen to do an apprenticeship instead. In this report, we analyse the official DfE data on long-term outcomes for higher education. We find that:
According to exclusive polling for the report, 44% of people believe that “there are too many students going to university”, compared to just 25% who believe there are not enough. The number who believe there are too many student places rises to 47% of those with a Bachelor’s degree, suggesting that those who go to university do not feel they receive the benefits of doing so.
The current political debate is mainly about shifting the economic cost of higher education between the general taxpayer and the individual graduate. This paper looks at how we can reduce the underlying economic cost – which arises because too many people are studying courses with high costs which are not repaid by higher earnings. By reducing the underlying cost we can make the individual graduate and the collective taxpayer better off.
Today we have data on the returns from individual courses – data which didn’t exist when the current system was set up. We can see which courses at which institutions lead to low earnings for their graduates. We now also have new data on the dramatic and accelerating imbalance of wealth between generations. We know that compared to their parents young graduates are dramatically less likely to own their own home, or to have generous defined benefit pensions. We know that a typical adult born during 1981–85 had half as much total net wealth at age 30 as a typical adult at the same age five years before them. The facts have changed – now it’s time for policy to do so too.
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