The impending student loan bubble, in the UK

Basically, the excessive number of students going (thanks Labour) to a number of low-quality institutions and the changes to payments (thanks Lib Dems) mean that students can’t even pay off their own interest. <Einstein joke>

Research among his pupils confirmed widespread ignorance about the changes to the interest charges applied  to student loans taken out  from last September.

‘I asked 160 pupils what the new tuition fees cap was and they all chorused £9,000 a year,’ he says.

‘But when I asked about the rate that would be applied to these loans, not one boy could tell me what it was.’

Interest continues to be applied to the debt with the rate depending on  the size of earnings – the more they are paid, the higher the rate, subject to a maximum  of RPI plus three points.
You’re punished for paying down debt – by the people who want you to pay it off.

Take, for example, someone starting on the average national wage of £26,600. Assuming earnings growth throughout their career of  RPI plus two points and the £21,000 threshold increases in line with inflation, Clugston calculates they will never repay their loan. The £43,515 debt accumulated at university will escalate for 27 years – peaking at £78,510 – before falling slightly to £76,800 at the end of Year 30. Under current rules, the debt is then written off.

Why pay them a penny?
Foreign students go off the radar completely, never to be seen again. Why aren’t they charged with theft? Oh yeah, ‘racism’. Except in Scotland, where they don’t have to pay either. Anything. Any tuition fees. At all. Pretty sure they’re white. It’s a direct tax on the English youth.

For the £43,515 debt not to escalate, the graduate’s starting salary would have to be £51,460. For graduates on a lower starting salary, Clugston’s analysis is more worrying. At £21,000 – the threshold for loan repayments to be made – and using the same assumptions as in the previous example, Clugston calculates that the graduate’s debt will keep on escalating because the required repayments are insufficient to arrest the impact of compound interest. At the end of 30 years, the outstanding debt is £101,942.

Swallowed up by the Goverment when it’s written off.
Almost like Marxists can’t do maths.

Only those graduates among the top ten per cent of earners will come close to clearing their debt. Someone starting on £35,000 will be left with a debt of £2,245 after 30 years.

Wait, they still won’t clear it?

Clugston says: ‘David Willetts, the Universities Minister, says 60 per cent of students will repay their debts over their working lives. But  I think this is highly unlikely. Based on the reasonable assumptions I have made, the Government will be forced to write off billions of pounds of student debt per year.’

John McCabe, rector of St Mary’s Church, Byfleet, Surrey, has closely followed Clugston’s work and says the findings are devastating.

‘It’s already extremely difficult for young people to get on the housing ladder and these accelerating loans are not going to help,’ he says.

‘The regulator warned about the time-bomb of interest-only mortgages. Well these loans are another time-bomb. This  is creating a culture of living with unrepayable debt – and wasn’t it that culture that has caused so much damage to the strength of the economy?’

You mean stupid people making stupid financial decisions? Yes.
Think of it as a financial IQ test.
Any students smart enough to figure this out are doing STEM. Higher entry level pay. Or Mummy/Daddy pay. Or they’re somewhere prestigious with connections.
The waste of space arts majors who can’t do maths will spend the rest of their lives suffering to pay off the debt to the institutions they’ve been brainwashed to adore while slaving away on minimum wage. It’s karmic.

STEM degrees are the only ones worth getting, says Math


The big picture. Over their lifetimes, graduates with majors in science, technology, engineering, and mathematics (STEM) can expect to earn far more than high school graduates with no college attendance, with an earnings premium of $1.5 million over and above the $1.73 million that high school graduates with no college attendance can expect to earn. Business majors do slightly worse than STEM majors, with a lifetime earnings premium of $1.4 million. Social scientists stake out the middle ground, earning $1.05 million more than noncollege high school graduates over a lifetime. Arts and humanities majors can expect to earn about $700,000 more, on average, than high school graduates with no college attendance.”

If they get a job after a liberal arts major. Big IF.

The worst STEM majors earn more than the best high school graduates. Those in the bottom quintile of ability who go on to major in STEM have lifetime earnings of about $2.3 million, compared to $2 million for high school graduates in the top quintile of ability; business majors do slightly worse than STEM majors. The worst social science majors earn about the same as the best high school graduates, and the worst arts and humanities majors earn less.”

Selection bias is real, but the earnings advantage persists.

trans. Idiots choose easy courses.

The ability premium (also known as the selection-bias correction) has declined over time.

because they let in anyone nowadays.