The Government has severely underestimated the cost of funding a university degree with a student loan, a damning report has warned.
The analysis, compiled by RedSTART, an education arm of the consultancy firm Redington, claims the Government’s mathematicians have used “outdated” sums to calculate the size of repayments graduates will make on student loans taken out after 2012.
The report claims someone graduating this year on an average starting salary of £29,000, will make total student loan repayments of £62,272 over 30 years, compared to £33,346 if official numbers are used.
It also found students set to graduate this year with a starting salary of £38,000 will face the largest repayments, and can expect to repay £100,146 in total. This compares to a much smaller £55,000 estimated repayment if official assumptions are used in the calculation….
….The report has criticized the Government for calculating how much future payments will be worth in today’s money terms by using what its author describes as an “insanely high” measure of inflation, as measured by RPI, plus 2.2pc – a measure decided upon in 2010.
By assuming a higher rate of inflation, future repayments appear lower.
Instead the report argues that calculations based on the rates at which banks lend to one another would be more appropriate……
Another key reason why graduates will repay more under the new system is because the repayment period has been extended from 25 years to 30 years.
Frederick Patten, the report’s author, refutes government claims that most students will be better off under the new system, maintaining that the vast majority of students will be much worse off.
He said: “Our numbers show that the average student will be around £30,000 worse off in today’s terms from the changes. They are undeniably worse off from the changes to student finance, with people at all starting salaries experiencing a rise in the cost of the loan in today’s terms. Only those from more affluent backgrounds will be able to pay the university costs upfront and avoid the substantial interest rate charges.”
not a word about overseas students, eh?
Martin Lewis, founder of MoneySavingExpert.com, said: “It’s impossible for people to accurately work out how much student loan they will repay because it’s all based on calculations that use assumptions. The size of the initial student loan is a red herring. There are no official estimates as the government won’t build a calculator to predict this – it would get heavily criticised for spinning things if it did.”
The new student loan system was met with strong opposition from young people when it was first proposed by the Conservative Government [and Liberal Democrat] in 2010. Tens of thousands of students took to the streets in a protest organised by the National Union of Students over plans to hike tuition fees to £9000 (up from just over £3000).
However, a number of experts have warned that the new repayment terms, which impose a much higher interest rate of up to RPI plus 3pc, compared to the 1pc interest rate on loans for people who started university earlier than 2011, could prove more worrying than the fees themselves.
wow somebody understands compound
The report also claims graduates with student loans taken out before 2011 will repay more than the government’s sums suggest. [is it against terms they signed?] The calculations show someone who started university in 2011 and graduated last year on a salary of £29,000, will repay £32,496 in total. This compares to the lower amount of £22,833, if government assumptions are used instead.
Since the new student loan system was introduced, academic cost analyses have focused on the burden the new loans will place on the taxpayer, rather than on the potential cost over decades to students, according to Rowena Mason, a senior research economist at the Institute for Fiscal Studies.
RedSTART’s warning that student debt could be more expensive than expected comes at a time of uncertainty for people trying to decipher total study costs.
Unless you have to go, it isn’t worth it.
If it’s something you can do at home, forget it.
People trawling the internet for an estimate will find a range of calculators and online tools, which all throw up wildly different results.
For example, MoneySavingExpert.com’s student loan calculator shows someone who started a three year full time degree in 2012 and borrowed £45,000, would repay around £36,000 over 30 years.
But type the same details into the student loan repayment calculator on DirectGov, a website run by the Student Loans Company, and the same student will be told they will face a repayment of £93,792 over 30 years. What the website doesn’t explain is that this figure is presented in future money terms, which makes it look like a much bigger sum because inflation isn’t taken into account. If the figure was presented in today’s money terms, it would be around £54,500.
yes, that’s much better /sarc
Research by the Intergenerational Foundation, a think tank, suggests that a graduate would need to be earning more than £50,000 a year before they start to repay the capital on the loan.
you can calculate, the system works!
Co-founder of the foundation, Ashley Seager, said: “Students have been led to believe that they are signing up to cheap loans. The reality is that interest rates are not only unfairly high but interest also starts accruing from the moment a student loan agreement is signed.
“Policy makers are over-burdening graduates for the next 33 years as they are forced to pay 9pc on income over £21,000 over the course of that period, plus over the course of the three years during which they are studying.” [Coalition governments, eh?]
unless it’s written off
because no chunk of graduate is getting a decent job in this economy off the bat
But a further blow could be on the way for young people if the salary level at which graduates start repaying their student loans is frozen at this level, as several senior education advisers have recommended. [inflation, uhuh]
The move would help cover university financing shortfalls at the expense of far higher repayments for graduates, which would hit everyone with a post-2012 student debt.
so it’s the University’s fault?
is this being conveyed clearly? [doubtful]
Mr Lewis claims the move would mean the Government would have “mis-sold university education to students”, and has pledged to organise a mass protest outside Parliament if politicians do decide to go ahead with it.
Which Government started it?
As commentor Vicar’s Knickers adds;
I doubt the majority of these fees will ever be paid back, and there lies a future problem.