Thursday, 9 December 2010

Students' fees, it'll cost us all in the end

Edit: There is some contention over the "resource cost" mentioned in this article, and exactly how it is dealt with and applied. As such take the below with a little pinch of salt in the event that I've misinterpreted exactly what it entails! I've struck through what I think isn't accurate, but left it in for posterity.

The Tory/Lib Dem coalition. I will, in the future go in to my feelings on this but right now I'll leave you with the background that I'm generally on balance happier than I am unhappy at the situation, I can see that it's complicated. I dislike Labour, I voted Lib Dem, I dislike the Tories and what the Lib Dems have done in government has left me more apathetic than I was a year ago. Bumpf over, let’s get on...

Here we are today, December 9th 2010, with 21 votes between the ayes and nays for student Higher Education (HE) fees increases. We are now moving towards a world that will see tuition fees increase and the debts that our students enter in to increased significantly. More progressive apparently, better for graduates, better for part-time students (the 33% alone that will benefit at least).

Sorry ...wait. Did I say that the students would be having greater debt? Oh yes, silly me.

We, the taxpayer are now going to be put in greater debt, on students' behalf!

Aside from some access funding for poorer students that won't count as debt (it'll be funded from budget shuffles and magic), each of the roughly 2 million students that study HE courses each year will add, approximately, £2.3-4.9bn to the debt our country carries on behalf of these students. Each year.

If this doesn't sound like a large enough amount, realise that it is on top of all existing student loan debt (£30.5bn for England) AND the £2.75bn those same students would have added to the system through top up fees AND the £3bn debt for living cost loans. Potentially a year on year increase in debt in this country of between £8bn and £10.5bn.

A lot of the campaign to stop the higher fees has fallen to students alone. Selfish taxpayers have, rather blindly and therefore stupidly, made their "They should get a job", "why should we have to pay for them" claims throughout the country. Even some particularly militant lefties have got up in arms about students campaigning for "Middle class benefits" ahead of campaigning for real cut-busting on issues like housing and benefits.


You think this whole plan by the coalition saves us money, as tax payers? Well I'm afraid the reality is that you haven't, Mr "I don't know what the fuss is about"!

By the time this new fee structure rolls in we'll be roughly £35bn in debt simply as par for the course, of which around £7bn will be fee related. After the first adopters of the new 6/9k fees graduate in 2015 it'll be up to £70-£75bn depending on how Universities charge, a total of up to around £36bn will be fees related.

Given that the loans system costs to maintain (as in, pay for lack of interest paid by the borrower), on average, about 33% of the cost of the loan (£9.5-£12bn £2.6-£3.3bn), that the cost of our national debt in interest is something like 5% of our loan amount (up to another £1.4-£1.8bn), and that the SLC costs £100mil to run the whole system each year, it is simple maths that as a tax payer we will be forking out MORE per year to allow students to get in to debt, and increase our potential deficit, than it would cost to just give HE institutions the bloody money from our tax income!

£14bn. Fourteen Billion Pounds. This could pay for so much more than what it is being pissed down the drain for, don't you think? With the annual cost of keeping all students that apply for loans at shy of £8bn (at most), the rest of the money could genuinely go to provide access for mature and disadvantaged people to get part-time or full-time higher education. It could ensure our HE institutions were the absolute best in the world.

Edit: So it would make more sense that the resource cost is a one off cost per loan (of which there are three for each student usually) and not a cost applied every year. If this is truly the case then it'll likely never reach the point that servicing the loan costs more than providing it, unless there are a lot more defaults and write offs as the system goes on. There is, of course, a real danger that there could be seen, in a few decades, significant amounts of money written off, billions perhaps...and at that point we'd need to question whether this policy was a financially sound one to begin with.

This doesn't alter the fact our debt bill increases dramatically each year, and that the amount tax payers are having to pay has (ironically perhaps) increased to levels that would have only a few years ago paid for all top-up fees to be paid for by the government.

So there we are, this vote that centered in the debate more on who could sling the most mud, Labour at the Lib Dems for selling out, Tories and Lib Dems at Labour for starting this whole thing off (but no worries, they’ll continue it any way), and Labour at the Tories for raping poor children or something, this vote that analyst are having a party over because of the gossip it can present about the coalition, Lib Dems, and cracks or faults in the veneer of both, this vote’s real impact has been completely ignored.

Yes, it'll make some poor kids that don't have the benefit of someone with common sense nearby to let them know debt doesn't really matter when you're earning, especially when it doesn't affect you if you're not earning. Yes it'll mean most people are unlikely to actually pay off that debt (further increasing our total public debt, of course). Yes it ensures the squeeze is still on universities who already complain about spiralling staff and resource costs year on year.

But what's been missed is that this whole exercise, when looking at it as the economic manoeuvre that it is...fails as just that. If it's meant to help bring economic stability by cutting our interest payments and debt as a percentage of GDP, then this policy fails the coalition's main aim. If it's meant to free up tax payer money to spend on other things, then this policy fails the coalition's main aim.

There is still time, as unlikely as it is to happen, to defeat this bill. It will soon go to the Lords where it will be debated once more, if it isn't defeated at the final reading in the House of Commons. The Lords is our last opportunity to even try to question why this whole policy has been announced. Given its apparent lack of economic advantage, given the students don't want it, given many universities don't want it (though they'd like the same amount of money please, thanks, yessir), given that parents are worried about how it'll effect how and where their kids grow up and gain the life skills they need in a cut-throat economy...shouldn't we be asking what the real reason is that the coalition made this disastrous policy one step closer to reality?


Disclaimer first, this is late night calculation, I apologise if anything is actually wrong and will amend it as it's pointed out to me. But it is only intended to be a generally rough set of figures, not allowing really for inflation in projections, nor for greater than inflation increases in either loans or repayment of loans.

I've used this parliamentary briefing paper for my figures.
It shows that current debt (maintenance and fees) is £30.5bn.
Maintaining the loan system costs on average 24% of the loan provision per year, 33% for fee loans and 21% for maintenance loans.
Take up of fee loans is now approaching 900k students per year.
The average loan amount given is currently £3110, only a hundred pounds short of the cap, or 94.5% of the cap amount. This equates to £2.75bn of loans
The above means each year 900,000 students would cost roughly £7.65bn in fee loans at most, and £5.1bn at least.
Each year a total of about £5.7bn is paid out in all loans to students.
Each year the debt bill for HE loans grows by around £4-£4.5bn. This may increase in the future even without fee cap rises.
This above would relate to around £1.5bn being paid back each year in to the system. This amount will rise as more graduates enter the job market.
Figures for interest payment are obviously rough, but come from David Cameron's own "£70bn interest" speech where he relates the potential £1.4trillion debt to a £70bn interest bill, or 5%.


The thing that springs to mind after some more thought is that it's unlikely that there are additional interest costs on top of the resource costs to maintain the loan debt. So rather than £14bn it may look more like £12bn.

A point I'd be happy to take more clarification on is how the resource costs are borne, where are they paid from and who pays them? Are they attributed to another debt pile, taken from the tax payer directly, or more indirectly subtracted from the overall tax takings to allow for repayment of the debt?

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