Figures from the BBC show that some graduates could face total debts of up to £84,000 under the new student loans regime due to launch in 2012 – double what they originally borrowed. Is a degree worth this sort of debt?
When I first blogged about the new system of funding for higher education, I had a fantastic response. Many of you felt very strongly about the issue and passionately argued in favour of, or against, £9,000 tuition fees – but in the end, the government’s policy passed through Parliament and the new regime is set to come into force next year.
Yet, this hasn’t signalled an end to the controversy surrounding student funding, with many students and their supporters as angry as ever about the changes.
The system in short
This week, studies by the BBC added fuel to the fire by suggesting that graduates with above-average, but by no means exorbitant, earnings could face paying back up to £84,000 for their university education. So are these figures reliable? And if they are, will any degree be worth its hefty price tag?
Once the new student funding system comes into effect, graduates earning £21,000 and above will have to repay 9% of their earnings for up to 30 years. If their student debt is not repaid within this period, it will be written off.
However, the interest rates payable on student loans under the new system will vary from inflation-only to inflation-plus-3%. Those who earn more will pay higher rates of interest on their student debt.
Shocking student debt scenarios
The BBC tells a shocking story on its website, suggesting that under this system some graduates will ultimately pay back double what they borrowed to fund their time at uni.
It worked out what would happen to three students, all of whom borrowed a total of £39,000 – £9,000 in fees, plus £4,000 for living expenses over a three-year course. It was also assumed that all three would go on to earn more than the national average.
You can download a spreadsheet of the BBC’s calculations here, but I’ll summarise one of the examples: A student with an annual pay rise of £2,000 would repay £83,971 over 25 years.
The BBC’s numbers are certainly enough to send a chill up my spine – and they’ve outraged many parents, young people, politicians and financial experts. But David Willetts, the universities minister, said the BBC’s ‘examples’ were not typical: ‘Taking cash figures and looking 30 years ahead is a rather odd way of doing it’.
He also pointed out that the government had deliberately decided to ‘ease the burden’ on people in their 20s and 30s, meaning student loans would be repayable over longer periods than they are now, making the monthly repayments lower.
Other accountants have argued that when taking inflation into account, an £80,000 debt will not mean the same in 30 years’ time as it does now
A debt too far?
Given the fervent response to my last Conversation about student funding, I’m keen to know what you all think about these figures. Are they as scary as they seem, or are we reacting to them too emotionally?
For my part, all I can say is that when I woke up to hear this data being bandied about on Radio 4’s Today programme, my heart sank. Whatever spin you try to put on them, these numbers remain enormous. And for young people from less privileged homes, I still believe this will make a crucial difference to whether they feel able to embark upon degree courses.