This week Nick Clegg talked to Cosmopolitan magazine, answering questions put to him by students.
He tackled the tuition fees issue head on:
I definitely felt that it was right to apologise for making a promise I couldn’t keep. At the end of the day, I lead the smaller party in a coalition with the Conservatives – who wanted to raise fees – at a time when there’s no money around and everyone has had to make sacrifices. What I made sure of, however, is that the new system wouldn’t price anyone out of university – and it hasn’t.
There are now more young people going to university than ever before – including, crucially, a higher proportion of young people from poorer homes. You pay nothing upfront and you don’t pay a penny back until you’re earning more than £21,000. And if, for whatever reason, you don’t earn enough to pay it back, eventually it gets written off and you don’t pay anything at all. I fought very hard for those things. It was very important to me that we ended up with a system that is fair.
He got off fairly lightly in that the raciest question was what his favourite hangover cure – a full English breakfast.
We are, however, intrigued in the answer to this question:
Worst student fashion mistake?
Too many to mention…
Photographic evidence of such would be greatly appreciated.
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79 Comments
I think the ticking time bomb on tuition fees is the interest rate being charged for post-2012 loans. The first cohort going through this particular system have started their third year. They will not have looked at the accumulating sum and I don’t suppose many will have realized the effect of compound interest on the sum they believe they have borrowed.
Earlier this week the Government paid off some old War Loans because the rate of interest the Government paid on them was 3% and took out new loans at much lower rates. Sensible. YET students for post 2012 loans are paying 5.5% – the basic RPI rate of 2.5%. + 3% . And it was 6.3% last year.
Personally i think this is shocking exploitation. The loan interest rate should be linked to what the Government is paying for say 10 year loans.
What is also obvious is that wealthy families will help their children replay these loans at the earliest opportunity (April 2016).
Good answers from Nick.
Nick’s at his best when he gives straight answers to questions without coming across defensive about government policy and without getting into party political attacks on opponents.
I am also not happy about the student loans issue. If they are on relatively low incomes, the debt will be following them around for most of the rest of their lives. How will they get a mortgage?
“There are now more young people going to university than ever before – including, crucially, a higher proportion of young people from poorer homes.”
And is that because Clegg increased tuition fees? Or because entry to nursing now requires a degree and nursing, for which the NHS pays fees and a grant, is the most popular degree subject?
Nom, it’s more of a graduate tax than a debt. For most it means they’ll pay an additional 9% on income over £21k.
Beyond the effect on net earnings the student “debt” will have no further effect on their ability to get a mortgage.
Peter, the coalition policy included increased grants for students from disadvantaged backgrounds, which has surely helped.
It would still have been cheaper, better for the country and politically more astute for there to be no fees or loans (ie debt) for UK citizens with the necessary entry qualifications.
@Daniel Henry “it’s more of a graduate tax than a debt”
Why?
Other than the figures involved it’s the same in principle as the system it replaced, and which Lib Dems did not describe as a graduate tax: the loan is a lot bigger, the repayment rate is a lot higher (especially in real terms), the repayment period is longer, and to offset some of this the salary threshold for repayment is higher. Furthermore, a student who fails to graduate is still liable to repay the “loan” (the clue is in the name) so if you want to call it a tax, why not be less misleading and call it a student tax?
@Daniel Henry “the coalition policy included increased grants for students from disadvantaged backgrounds, which has surely helped.”
Hmmm. Why would that be necessary “at a time when there’s no money around” if the new system is a “fair” one which does not discourage such students from going to university?
The answer on tuition fees would be good, except for the fact that he could have kept it but chose not to. As a result, people don’t trust him, and so long as he remains leader they won’t trust us. Even worse the longer we continue to delude ourselves with that comfortable illusion that things will work out fine, people will be less and less likely to trust ever again.
.. to trust us ever again.
@Daniel Henry “the coalition policy included increased grants for students from disadvantaged backgrounds”
Did it? Not something I know much about, but comparing https://www.gov.uk/student-finance-for-existing-students with https://www.gov.uk/student-finance/loans-and-grants, the level for grants does not leap out as having increased significantly and the new system appears to penalise part-time students.
I recall being told that £9000 tuition fees would be the exception and that universities would only be able to charge that if they had plans to widen access. It looks like £9000 is the rule, and that widening access amounts to a reduction in fees for high-performing students and those from poorer backgrounds, a measure which must surely be redundant if it is true that high fees are not a disincentive to students.
Daniel, can you explain about the interest that is already accruing to the loans taken out by post 2012 students?
It seems to me that a typical student from this cohort will end their 3 year course with a loan of about 45,000 (including interest charges over that period of RPI + 3%). What interest rate will this attract?
It seems to me that a student will have to be earning around a similar figure (a coincidence) £45,000 for any repayments ie 9 % of £24,000 to actually reduce the capital sum they owe. If s/he earns less than such a figure but more than £21,000 their debt will be increasing each year.
Am I right?
Politically, the issue of tuition fees is still a nightmare for Lib Dems. The actions of Clegg and other senior figures, especially after choosing to campaign in 2010 on a platform of “no more broken promises”, makes the party appear dishonest and/or incompetent, and colours the reception of policy statements in every area. Furthermore, the party seems to have been bounced undemocratically from a policy of opposing all tuition fees to a policy of supporting high tuition fees and loans for all without pausing to debate the issue (though I believe party policy is still officially to aspire to scrap fees, presumably replacing the current “fair” system with an unfair one then?). Somewhere between the two positions there are probably much better alternatives, possibly involving more generous state funding for some courses and less for others, but it is difficult to see how that debate could take place now.
Just to move on slightly, if a student with £45,000 owing at April after final year does not earn over £21,000 for next ten years their capital owing will have increased to £80,000.
If we had factored in an interest rate of 2.5% roughly what the government has to pay for their money over 10 years, that capital sum would have been £57,500.
Please someone tell me if I have misunderstood this system.
You see, if I’m right most graduates* are going to be paying 9% of their income to wonga.ac.gov for 30 years after they graduate.
My assumption is that most graduates will earn somewhere between £21,000 and what ever figure above this, 9% of which, is less than any increase in the capital sum owing to interest charges.
And simply I cannot believe that this will not affect the ability of these people to gain mortgage approval.
If all the critics of the tuition fees policy could explain how a big hike in everyone’s general taxes to pay for free tuition would be much more popular instead, it would really help.
1) Graduates as well as non-graduates having to pay extra taxes;
2) Unlimited commitment to pay more taxes in future.
Both are really going to go down well on the doorstep.
Bill le Breton 9th Nov ’14 – 2:22pm
Please someone tell me if I have misunderstood this system.
Bill,
It would appear that nobody is going to contradict you! No Clegg defenders are forming a queue to explain how what he has said to Cosmopolitan is accurate.
Clegg said to Cosmopolitan that — “..What I made sure of, however, is that the new system wouldn’t price anyone out of university – and it hasn’t”
Perhaps Clegg does not understand the numbers? Perhaps Clegg means that it will not price anyone out of university just as long as they do not hope one day to be abe to afford to buy their own home as well as paying back their student loans ?
Perhaps he thinks that everyone that leaves university can get a job by asking their dad to pop next door and ask Lord Carrington to fix them up with a plum job with Leon Brittan.
It worked for Clegg so why can’t everyone else just pull up their socks and do like he did and just get their bikes and stop whining?
RC If you have followed other threads you will realise that the new system is a mess and will involve increases in general taxation to cover defaults anyway. Until then however, we will have students, their parents and their grandparents hating us because they are convinced we lied to them. Believe me being considered liars by the electorate doesn’t go down well on the doorstep at all. It’s trust you see. No-one trusts Nick and we have to overcome this and fast.
The inspiration for my comment was a series of articles on student debt in the US on the BBC website, which I have been following. This one for instance: http://www.bbc.co.uk/news/business-29505582. I certainly hope we don’t go there.
See item 15 on the Money Saving experts guide to student loans for 2014, which concludes:
“Overall, both in my view, and that of mortgage brokers I’ve discussed it with, it’s likely to even out – and it’s certainly a negligible issue compared to building a substantial deposit.”
http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes
RC 9th Nov ’14 – 3:24pm
“…,,,,,,,, explain how a big hike in everyone’s general taxes to pay for free tuition ..”
RC,
Nobody has to explain that because it is not the only alternative. This country could do what 10 other EU countries do and provide free university education.
I think I am right in saying that the number of EU countries providing free uiversity education is just about to increase to 11, because Germany is moving away from charging students.
RC,
if any one of those 11 countries has been weighed down with the burden of an enormous “tax hike” to provide free education, perhaps you could tell me which one?
It appears to me that in some of those contries the tax on average citizens is rather lower than tax in this country.
Maybe it is because those countries have not been paying for the bombing of Iraq, Afghanistan and Libya during the last 25 years.
Or maybe you think that huge tax rises for military adventurism is a price worth paying?
“Perhaps he thinks that everyone that leaves university can get a job by asking their dad to pop next door and ask Lord Carrington to fix them up with a plum job with Leon Brittan.”
John, these sorts of repeated personal shots at Clegg, on numerous threads, do not help your credibility. If you avoided repeating such lines, I think your comments would be better for it.
@ Bill
There is a simple solution which I have recommended to my sons. Graduate, Leave Country. Never repay loan.
I will preface this by saying that I was not a fan of this policy when it came in, and I too think that the interest rates charged on loans are scandalous.
However, as someone planning to go to university next year I will say that the loans will not put off poorer students. You pay nothing up front, and never have to pay anything unless you earn £21,000 per year. There won’t be debt collectors banging on the door, it’s just tax.
Nom de Plume – a student loan will not go on credit files, so will not affect mortgages etc. in the future.
I was previously in favour of free university education, but have now decided I am in favour of a graduate tax (though a proper one, not the odd fudge we currently have). Graduates usually earn more money, so should not be subsidised by the worst off.
RC, I was making the point about the Government setting up a system that charged a higher rate of interest than it itself pays to provide the funds upfront. But then having such a rate of interest would make the loan book more attractive if ever it were to be sold.
And, yes I do think that, in a society which wishes to do well in the knowledge economy, we all benefit from raising higher Education attainment. And I note that not only do German regions have lower fees, most of them are in the process of removing fees all together.
Paul W and Iain. It is not realistic to think that these repayments will not influence the ability of this cohort to get mortgages. They do not have to show on credit files – lenders are looking at expenditure.
A) if 9% of your income over 21,000 is removed it most definitely will influence the ability to put together a deposit of sufficient size to attract lower interest rate offers.
B) If mortgage companies are examining household expenditure (on credit cards as well as current accounts) to assess lifestyles and ability to pay then someone on £25,000 a year who is paying £540 to the student loan company is bound to have prejudiced their position – especially if the lender knows that 9% of any increase in salary will go straight to the SLC.
But the political point I made originally is that at present students, parents and grandparents do not appreciate the pernicious interest rates charged by this system. I doubt many realise that the interest charges are already clocking up -last year at 6.3% !!!! When they do, which I suggest may between now and May, the impact on will be doubled the way the scheme has been sold so far.
Martin, beware the bailiffs http://www.dailymail.co.uk/news/article-2824568/Now-student-loans-company-plans-hire-bailiffs-overseas-chase-British-graduates-moved.html
Lifelong education should be free at the point of delivery and financed by a progressive taxation system. Fees for courses should never be a debt on the student. Education has many benefits for the individual and for society. Education should not be valued only if it leads to a high paying job. People should not have to pursue educational courses only for the earnings value that they might lead to. If politicians are not willing to put those arguments before the public and stick to them, then I see no reason why I should vote for them.
@Paul Walter “See item 15 on the Money Saving experts guide to student loans for 2014”
You forgot to point out item 15 is titled “Tuition fees can impact your ability to get a mortgage, but not as much as people think”. Also, repaying a student loan will reduce a former student’s ability to build a substantial deposit, so it’s a bit of a double whammy.
I didn’t forget it, I was fully aware of that title as I just read it before linking to it.
Under the new system graduates will have more disposable income available for mortgage payments than under the old system.
But hey, this is a quite pointless discussion. All these points were beaten to death in the comments thread on this post:
https://www.libdemvoice.org/opinion-tuition-fees-not-the-crime-of-the-century-41178.html
Nick Clegg: “I definitely felt that it was right to apologise for making a promise I couldn’t keep.”
Of course it was possible to keep the pledge. I can prove this very easily by pointing out that 21 Lib Dem MPs did the “impossible” and honoured the pledge.
“At the end of the day, I lead the smaller party in a coalition with the Conservatives – who wanted to raise fees”
So exactly how hard did Clegg fight for the tuition fees policy during coalition negotiations? I’ve never seen any evidence that he fought for it at all.
“at a time when there’s no money around and everyone has had to make sacrifices”
Given that the government has long since admitted that the new system is costing taxpayers more than the old one, this particular excuse makes even less sense than the other ones.
This is the problem for Clegg. Every time he opens his mouth on fees, he spouts more untruths (three big ones in the space of 53 words), which hardly gives the impression that he feels bad about misleading voters. He just doesn’t get it, and I don’t think he ever will.
Paul Walter, as is usual when Clegg and fees are to be defended, quotes Martin Lewis of moneysavingexpert – a godsend to loyalists, since he is a respected independent expert who thinks that the impact of the new fees regime has been overstated. So what does Lewis actually say? Well, Paul Walter’s quote was:
“Overall, both in my view, and that of mortgage brokers I’ve discussed it with, it’s likely to even out”
So let’s find out by reading Lewis what “even out” was all about. It turns out that Lewis’s point was about the incidence of repayments. Lewis points out that under the new scheme, early repayments are actually a little lower than under the old scheme. So, that tends to make it a little easier to get a mortgage soon after university. As against that, later repayments are “far higher” under the new scheme. Since however these are also far in the future, they have a reduced impact on the availability of mortgages to younger graduates. It is this balance between early and later repayments Lewis is talking about when he uses the phrase “even out”.
However, Lewis’s analysis says nothing at all about Bill le Breton’s point, that because the interest rates charged are far above market rates, repayments in the longer term will rise disproportionately. That’s not Lewis’s fault. He was primarily analysing the short term impact. Bill has addressed the longer term impact. It is not an answer to Bill’s point to go away and find someone who has analysed something entirely different!
@David Allen @Bill le Breton
Not only is the interest rate vicious as it is, but the system has been designed so that not only the interest rate but also the payment threshold can be changed virtually at will by this or any future government. A very handy stealth tax for our future leaders to draw on. Anyone who thinks the current repayment regime – bad as it is – will remain in force for the lifetime of the loans is naïve.
Paul Walter 9th Nov ’14 – 4:10pm
You offered me some advice on the “credibility” . A handy diversion from the subject perhaps?
You might want to answer some of the points of substance in this thread. If you find the points in my comment too challenging, you could try to answer the one from David Allen 9th Nov ’14 – 7:49pm
That is the one about your reference to Martin Lewis being a bit misleading.
Or you could answer the earlier point from Bill le Breton about paying off student loans and the ability in later life to get a mortgage.
If you do not think the very privileged background of Nick Clegg is a relevant factor, that’s a matter for you. I happen to think it is highly relevant and my guess is that I am not alone in that. If Clegg had not had such a cushy start in life he might be better able to understand why his comments about student finance in Comsopolitan Magazine just dig him deeper into a hole.
Clegg is quoted as saying — “..I lead the smaller party in a coalition with the Conservatives – who wanted to raise fees – at a time when there’s no money around and everyone has had to make sacrifices. What I made sure of, however, is that the new system wouldn’t price anyone out of university – and it hasn’t.”
Clegg’s statement is disingenuous to say the least, he Nick Clegg wanted to raise fees which is why after our party Conference in autumn 2009 a letter was published in The Guardian from Evan Harris and others on this very subject.
Clegg’s reference to “no money around and everyone has had to make sacrifices” is a bit hard to take when we all know that the privileged few have been laughing all the way to their tax haven over the last our years.
Clegg’s statement to Cosmopolitan that he personally has made sure that nobody is priced out of unversity will be hard to take for anyone who has not taken up the opportunity of a university education because they have decided they will have a better chance of buying a home in later life if they avoid the inevitable debt.
David. All quite brilliant as usual, except I wasn’t responding to Bill le Breton’s point.
Yikes… I go away for a few hours.
@ Bill Le Breton, your argument was summarised as:
“You see, if I’m right most graduates are going to be paying 9% of their income to wonga.ac.gov for 30 years after they graduate.
My assumption is that most graduates will earn somewhere between £21,000 and what ever figure above this, 9% of which, is less than any increase in the capital sum owing to interest charges.
And simply I cannot believe that this will not affect the ability of these people to gain mortgage approval.”
I agreed with both of the first two paragraphs, which is why I considered the scheme to be more of a “graduate tax” rather than a “debt” (although Peter is right to point out that those who don’t graduate will also be liable to pay…)
With the third, what affect would it have on their mortgage approval?
That their future earnings will be subject to this “graduate tax” when considering their future repayability? How significant will that be? Lewis’ research suggests that mortgage lenders don’t see it as a big deal.
As someone paying off student debt (admittedly off the old system), even if my £90 per month was to be a permanent deduction for the rest of my career, my concerns about housebuilding are far more about the inflated capital costs than my net income, especially compared to had I been able to buy at similar prices that my parents did in the mid 80s.
About further comments about the “fairness” of the above inflation interest rates, the reason why they were put in (and Vince Cable did it deliberately) was so that by charging those who’d earn enough to pay off their entire “debt” a bit more by rising interest rates, this made it more affordable to raise the threshold so to reduce payments for lower paid graduates.
We ended up with a system where the lowest paid 33% of graduates were expected to actually pay less under the new system compared to the old system, as their loan would be written off before they’d paid as much as they would have under the old system. This is why the NUS privately described the new system as “mildly progressive”.
As Bill pointed out, those who are able to pay off faster will have an advantage over those who gradually work their way up to a higher paid job, but overall the interest rate made the system more “progressive”.
@Stuart
You’re really trying to have it both ways when you say:
“Given that the government has long since admitted that the new system is costing taxpayers more than the old one, this particular excuse makes even less sense than the other ones.”
If that’s the case, it’s because the government is taking less in repayments than than it used to, in which case we’re giving a better deal to students than the old system.
Also, Clegg was not part of the coalition negotiations, which were based on the key priorities in our manifesto which can be seen on this page:
http://issuu.com/libdems/docs/manifesto/6
As you can see, tuition fees wasn’t one of them.
Doesn’t excuse that a number of our MPs broke the pledge they signed. (And it was Nick’s responsibility as leader of the party as to whether we signed them)
It also doesn’t help that we made tuition fees such a prominent part of our campaign despite it not being a manifesto priority. Hopefully lessons have been learned from such mistakes.
There’s a lot of criticisms about Clegg that I can’t defend him from, but I just find that so much of the flak he gets over tuition fees is often lazy.
@Daniel Henry “This is why the NUS privately described the new system as “mildly progressive”.”
NUS or IFS?
I believe the IFS described it as “mildly progressive”. The NUS referred to it as “relatively progressive” in a memo (possibly not a private one) advising student leaders on negotiating with universities on the level of fees when there was a naive belief that fees would be be less than the maximum: “The loan gets written off after 30 years (currently 25) – the vastly increased numbers of graduates that will never pay the loan off are in fact what makes the system relatively progressive (though the richest will never take out a loan and and higher earners will pay off early, avoiding interest).” (http://www.bbc.co.uk/news/education-12492825)
My understanding is that Bill le Breton has slightly misunderstood the system in that the interest rate if you are earning under £21,000 is just RPI so £45,000 would have grown to £57,603 – although this would be the same amount in real terms (depending on your definition of inflation). Obviously those that have 10 years of earning under £21,000 would also benefit from only having 20 years potentially of repayments rather than 30.
My understanding is that between £25,000 and £41,000 – there is a rising amount added to RPI. In general as has been pointed out to make it more progressive system overall.
In general terms it is worth pointing out that taxpayers especially as regards mortgage payments are benefiting from the £800 tax cut in the increase in personal allowance – while I appreciate some of this is taken account of by inflation and also applied to all. However if you take into account both policies most newly graduating taxpayers will be paying less income tax/student loans payments over a lifetime than those graduating 5 years ago. So overall those graduating under the new system will be better off than if the coalition Government hadn’t existed.
Also £800*30 years = £24,000 – a rise of £6,000 tuition fees for 3 years = £18,000.
I believe that all education from nursery to university should be free but I would take those on the minimum wage out of paying income tax first.
I pretty much agreed with everything in that post Peter. 🙂
@Michael “if you take into account both policies most newly graduating taxpayers will be paying less income tax/student loans payments over a lifetime than those graduating 5 years ago.”
But those who graduated 5 years ago also benefit from the increase in the personal allowance.
@Daniel Henry
But “relatively progressive” hides a multitude of sins. Compared to a tom cat, Cheryl Cole is a relatively good singer ;-).
Daniel, thank you for your answers. A small point first, I think you will find that Lewis says ‘mortgage brokers’ tell me. I think that mortgage lenders will have to take into effect the monthly expense of payments to the SLC or whoever a future Government sells the loan to.
Besides being concerned about the cost of a dwelling all buyers should also be concerned about their ability a) to raise sufficient deposit to ensure you get offered a more competitive rate by the lender, b) that your income and expenditure profile is sufficient to pass the new stringent affordability tests. The advice now I understand is to pay restaurant, bar bills and entertainment tickets by cash so that their is not an audit trail on credit cards and bank accounts. So to imagine that, say, a £500+ repayment to SLC each month won’t affect a person’s ability to get a mortgage is naive.
The political folly is what made me run this hare. I really don’t think that the interest rate issue has yet to emerge. Again it won’t be a ration discussion as we have had here, it will be Coalition thump university under graduates with extortionate WONGA-RATES of interest. (Michael, it is RPI + 3% whilst undertaking the course.) I think it will be an issue between now and May. I hope I am wrong.
To suggest that Clegg did not take part in the Coalition negotiations is being more literal than informative.
Each night after the negotiations Alexander reported to Clegg and no doubt future ‘lines’ were developed between them. I imagine the leader’s advisers and staff were involved too. It is precisely to have a reason to withdraw and consult that negotiating teams do not have either a majority of a decision team or the principle decider in their number. We also tabled at the outset an extensive paper that shaped the early negotiations.
It is much more likely that, having failed to convince conference of the need for increased fees, Clegg, Laws et al thought they could say that the Tories insisted on this. It was of course a calamitous decision that was a striking symbol for our opponents to use against us. But, then, only Andrew Stunell had the kind of experience needed in such negotiations. There were of course many others in the Parliamentary party who had been through this process in local Government – Don Foster as leader on Avon CC being one other.
I think the coalition agreement did not cover the detail of student fees. It agreed Vince Cable would be Secretary of State for Business Innovation and Skills and that there would have to be a 25% cut in that department’s budget. It was Vince, not Nick, that looked at this situation and developed the closest thing as possible to a graduate tax (which was LibDem policy). His alternatives (to honour the pledge) were a massive cut in the number of Uni students or decimating further education and apprenticeships. I think that the reason we couldn’t have a straight graduate tax was because that meant students from other parts of the EU would not have to pay for their UK higher education.
Daniel Henry 9th Nov ’14 – 9:41pm
Daniel, you are just factually wrong to suggest that — ” Clegg was not part of the coalition negotiations, ”
If you read the quite detailed account in David Laws’ book ’22 Days in May’ you will see that Clegg was central to the coalition negotiations. Meetings involving Clegg and reporting back to Clegg took place all the time. Difficult areas were “referred up” to direct conversations between Clegg and Cameron. It was Clegg himself who spoke to Cameron, to Brown and to Gus O’Donnell amongst others.
For example on this particular subject see page 185 which includes — “Higher education was clearly going to be a much more difficult issue. David Cameron and Nick Clegg had already spoken about this particular issue themselves.”.
Later on page 199, Laws says — “….Nick Clegg and Danny Alexander had managed the negotiation process superbly, not just after 6th May but before the election.”
Clegg was very much the central player in the negotiations, as party leader few people would have expected anything less. Whether he did it well or how he handled things afterwards is another matter but it is absolutely clear from Laws’ account and the accounts of others that Clegg was central to the negotiations.
“If you do not think the very privileged background of Nick Clegg is a relevant factor, that’s a matter for you.”
Of course, I think it is relevant John. It’s just when you repeat the same point in what comes across as a personal way on umpteen threads then it tends to lose its impetus.
I stand corrected on Nick’s involvement with the negotiations.
Just picking up on a couple of your points Bill:
“So to imagine that, say, a £500+ repayment to SLC each month won’t affect a person’s ability to get a mortgage is naive. ”
I did a quick calculation, and to be paying £500 in loan repayments would require them to be earning almost £88k – they’d be paying £500 in loan repayments from a £7300 monthly wage.
I don’t think that £500 from £7300 will significant affect their ability to get a mortgage…
“The political folly is what made me run this hare. I really don’t think that the interest rate issue has yet to emerge.”
Interest rates were discussed at the time – it was when Vince considered disallowing early repayments to stop rich families from dodging the interest.
That said, you’re right that there’s nothing to stop it re-emerging with a new tabloid spin…
Bill le Breton – re: interest rate.
Thanks for the repayment scenario user the new student loans regime. I suspect the reasoning behind charging a higher rate of interest is that this allows for two future scenarios:
1. At 5.5% a student loan is effectively being charged at around the market rate for personal loans, although some providers of private student loans are offering interest rates of 10~12%. This I suggest begins to open the door to having more students opting out of the system (universities offering their own loan arrangements?) and could lower the cost to the treasury, but it is probably more likely to result in a greater number of loans being written off by the government – so largely cost neutral but politically allows for claims that the government is assisting the less well off student).
2. The greater margin (ie. premium over base rate) potentially can be used to make the loan book more attractive, particularly if, as the government has done in the past, it wishes to sell off the loan book.
But as others have indicated with other EU countries currently offering free higher education, students may need to re-assess the value of studying for a UK degree compared to studying abroad.
Drew Durning’s post
“I think the coalition agreement did not cover the detail of student fees. It agreed Vince Cable would be Secretary of State for Business Innovation and Skills and that there would have to be a 25% cut in that department’s budget. It was Vince, not Nick, that looked at this situation and developed the closest thing as possible to a graduate tax (which was LibDem policy). His alternatives (to honour the pledge) were a massive cut in the number of Uni students or decimating further education and apprenticeships.”
raises crucial questions. First, the published Coalition Agreement:
https://www.gov.uk/government/publications/the-coalition-documentation
nowhere states what job Cable would do or what the budget cut would be. Presumably Drew Durning believes that Clegg, Cameron and Cable agreed these decisions as part of the non-documented coalition agreement?
They were, of course, disastrous decisions for the Lib Dems. They run completely counter to the implications of the statement in the documented coalition agreement, that “If the response of the Government to Lord Browne’s report is one that Liberal Democrats cannot accept, then arrangements will be made to enable Liberal Democrat MPs to abstain in any vote.”
The documented CA implies that the Tories would take a nasty decision, and the Lib Dems would then be allowed to wash their hands like Pontius Pilate and declare that they had tried their damnedest, but had failed to persuade the Tories to agree an acceptable response to Lord Browne. It should have been an option for the Lib Dems to create an unholy row, extract a few public concessions (if, perhaps, along similar lines to Osborne’s magical EU bill reduction?!), and then argue that their abstention was at least a reasonably honourable piece of behaviour. Whilst this wouldn’t exactly have left us smelling of roses, it would greatly have ameliorated the stench of manure.
But that didn’t happen. Instead, Vince Cable was allocated the job of designing the crucifix, onto which the Lib Dems then climbed and perched. And that, says Drew Durning, was part of the unspoken Coalition Agreement. Well, one can understand why the Tories would have liked the idea. But why on earth did Clegg and Cable agree to it?
Daniel, actually £500 would make a big difference. HSBC’s mortgage calculator gives a loan of £225,000 with a deposit of £25,000 needed without the Loan repayment. With the Loan repayment if changes to a loan of £196,000 and a deposit of £54,000.
Bill le Breton – re: Total debt
I think you may be over estimating the amount of Student loan and under estimating the total debt a typical student will have on completion of a 3 year course, if the figures from LV are to be believed (http://www.telegraph.co.uk/education/universityeducation/student-finance/9888756/Adding-up-the-true-cost-of-university.html ).
Here they estimate a typical student, starting their studies in Autumn 2012 will accumulate a little more than £53,000 of debt, of which approximately £39,000 will be Student Loan (£9,000 pa tuition, £~3,500 pa. maintenance loan, I’m assuming zero maintainance grant). I see the comments to the article note if this was repaid over 25 years it would mean total repayments of around £103,000, which for some subjects can make it uneconomic.
David, if I understand you right, you’re pointing out that large deposits are needed for a mortgage and therefore the £500 repayments per month would matter to the earner?
If that’s your objection:
1) As mentioned before, if they’re paying back over £500 per month, then they’d be earning a gross of £7,300 per month. Even after the various taxes we’re looking at the least £4,000 PER MONTH net – I don’t think they’ll be struggling to afford anything. You do realise you’re effectively complaining that we’re taking too much from a top 5% earner here!!
2) I think the real problem here is house prices. Student loan repayments are a small deduction compared to other outgoings, especially on the new system. As mentioned before, my dad was able to buy a two bedroomed house for 3 times his annual salary as a newly qualified teacher in the mid 80s.
If I could get a deal like that nowadays, I’d happily pay three times as much in student loan repayments for the privilege!!
@peter. It is of course true that the income tax personal allowance is for all. But given this was not a Tory or Labour policy and the discussion is about how badly off students are it is worth pointing out that if you combine both policies they are better off.
@Bill Le Breton. It is true that it is 3%+RPI during the course. But you said that a debt of £45,000 would have grown to £80,000 if you were earning under £21k for 10 years. For accuracy it would only be RPI charged after the course and that would mean that it had grown to £57,603 – but the same in real terms.
It was blatantly clear that Labour would also have increased tuition fees and remember they broke a promise in the first place in introducing top-up fees. Labour 2001 manifesto: “We will not introduce top-up fees and have legislated to prevent them.”
Alan Johnson at the time higher education minister, told students: “sometimes it was necessary for governments to change course: “There will be occasions when politicians do have to do something different to what they said they’d do because circumstances change,” he told them”
I think even the NUS admitted that the current system is a hairs-breadth away from being a “graduate tax” – indeed it is better in some ways in that it is time limited.
Yes we made a mistake. Yes I would prefer education including university education to be free. But actually overall if you are going to have tuition fees we delivered a reasonable system at a time when Labour if you remember left the Government a note saying sorry there is no money left!
“Yes we made a mistake” (<a href="https://www.libdemvoice.org/clegg-talks-to-cosmopolitan-43246.html#comment-324717"Michael)
Must it be said over and over? Clegg and the party can be criticized for making a mistake or for having the wrong policy in the first place (I didn’t think abolishing tuition fees was a sensible priority at all), but what is considered unforgivable by so many was breaking a cast-iron promise. Not only is that not the same thing as “making a mistake”; Clegg has never apologised for it, and as far as I’m aware no one else has either. (Actually, I think Farron came closest — but then, unlike half his colleagues, he’s not even guilty!)
Bah. html fail. Try https://www.libdemvoice.org/clegg-talks-to-cosmopolitan-43246.html#comment-324717.
@Malcolm Todd.
I would have more sympathy if Labour was included in breaking its manifesto pledge over top-up fees. As I have outlined we are very close to a graduate tax – in some ways a bit better, in some ways a bit worse. And overall those graduating will have more money in their pockets if you take Lib Dem policies as a whole which is only fair. As um.. who was it – oh yes Alan Johnson of Labour said sometimes politicians do something different to what they said they’d do because circumstances change.
Overall I am relatively happy because of the income tax cut and that it is close to a graduate tax.
If you ask me if I would like to see university education free – yes I would. If I you ask me would I like to have seen different circumstances where Labour had left the country with a little money – yes I would. But if you ask me is my first priority to give those on the minimum wage a tax cut and indeed not to pay any income tax – then yes it is.
In general the amount that Lib Dems have achieved with under 10% of the MPs – that is with 90% of Parliament against us is pretty remarkable. And 13 years of Labour showed that they were not a liberal party even if like the Tories they have some liberal elements.
@Michael “I would have more sympathy if Labour was included in breaking its manifesto pledge over top-up fees. As I have outlined we are very close to a graduate tax”
Right up to the 2010 election, Lib Dems hammered Labour for this broken promise and campaigned against the system Labour introduced, deliberately courting the student vote on the back of this. The new scheme is no more like a tax than the old one; the mechanics and the principle of loan repayment are the same, but the numbers have changed. The party had ten years to look at it and say that tuition fees and loan repayments were a good idea that could be built on, but it did not. Instead, Lib Dems contrasted Labour’s apparent deception with their own campaign for a “new kind of politics” and “no more broken promises”. The way that the repayment of loans for increased tuition fees is now presented as “fair” makes it look like something that Lib Dems positively want rather than something they are forced to accept. Worse still, Cable, Clegg and then Hughes became the faces of increased fees, instead of any of the Labour or Conservative politicians who wanted it.
Returning to points made earlier about mortgages, back in June 2014 This Is Money (part of the Daily Mail group) stated, “Student loan debt IS now considered when applying for a mortgage” (http://www.thisismoney.co.uk/money/mortgageshome/article-2646007/Student-loan-debt-IS-considered-applying-mortgage.html)
The rest of the headline, “throwing graduates’ home ownership plans into jeopardy” might be over-egging it, but the article reports that the Financial Conduct Authority and the Building Societies Association confirm that student loans are committed expenditure and will be considered as part of the affordability assessment. Obviously this applies to those repaying under the old scheme and the new one.
Daniel, Sorry but you are getting it wrong. What HSBC’s figures show is that with a £500 monthly student loan repayment, a graduate would only be able to get a loan of £196,000. Without it a loan of £225,000 would be given. That is a big difference by anyone’s standards.
Michael,
“oh yes Alan Johnson of Labour said sometimes politicians do something different to what they said they’d do because circumstances change.”
Yes, Alan Johnson made that admission, when operating in honest mode. He was describing one class of political let-down, the kind that happens when targets get missed, or promised tax cuts don’t happen because the economy takes a turn for the worse. That’s one sort of political let-down.
Then there’s the other kind of political let-down. That’s when the Greens buy a fracking rig and set it up on the white cliffs of Dover, when the Tories kidnap the Queen, when Farage orders the escargots, and when Labour stick a motorway through the middle of Tolpuddle. And when the Lib Dems triple student fees!
@Peter Watson
To have had a less than perfect Liberal Democrat Parliament and Government is disappointing. As I said we are less than 10% of the MPs. And there have been many “mistakes” and things that I dislike about the coalition agreement – Police and Crime Commissioners, Free Schools and so on.
Against which – Pupil Premium, gay marriage, triple lock on pensions, increase in personal allowance.
Did by any chance mention that we were less than 10% of MPs?
This is different from a Labour Government with a massive majority and bouyant public finances which they had squandered by the time of 2010. Did I mention that they left the coalition Government a note saying sorry there is no money left?
To have said that we would abstain on the Browne Review was a mistake. Did I mention that it was Labour that set up the Browne Review – hinting before the general election that it would mean a rise in fees.
As I also said if you compare it with Labour policies – overall given the personal allowance income tax cut – which was not Labour or Tory policy – the rise in fees is more than offset by this tax cut.
You slightly misrepresent the this is money article which is saying that under the rules of lenders looking at the affordability of mortgages then “free” disposal income – against which is regular payments is looked at. Again this is overall good news because they will be paying less income tax. Also getting a grip of the public finances has kept interest rates down.
@David Allen
Alan Johnson was precisely describing Labour breaking its manifesto promise on tuition fees at a time when they had a thumping great majority and healthy public finances and an improving economy. NOT at a time when the “economy had taken a turn for the worse.”
@Michael “we are less than 10% of the MPs.”
That explains the implementation of a tuition fees policy that many Lib Dems oppose, not the apparent volte-face by senior Lib Dems to endorse that policy.
@David Allen
At some point in the process it was agreed that Vince Cable would get the business department and that the mess left by Labour meant there would be a 25% cut in that department’s budget. It’s not a conspiracy; it’s just a fact (also known as “austerity”). The LibDems joined the coalition, not because we like the Tories but because to do so was in the country’s best interest as it teetered on the edge of Greek like collapse.
There’s certainly a strong possibility that Vince did not discover the full technical reasons why a graduate tax by name was not feasible until after he became Secretary of State . The easy way out at that point would have been a Pontius Pilate like abstention! Instead, he implemented a graduate tax by nature but had to package it as an increase in fees. Tough decision – to do the right thing knowing it will cause real political damage to the party! We could also have left the Tories to a minority government and maintained rose-smelling, self-righteous moral superiority as that instability created economic collapse and a real depression after the government defaulted on its debts. Only we didn’t and yes, there’s a high price to pay at the polls for wading into the political manure and doing the right thing under the circumstances.
There is of course, an often mentioned hope that at some point, some of the electorate (maybe you too should consider this) will recognise that the LibDems should be judged on the many things they have delivered rather than on the one thing they couldn’t.
@ David Evans
You need to give me a link to the mortgage calculator you’re using. The one I found didn’t have any fields to input student loan repayments, merely asked me how much I wanted to borrow and my initial deposit.
Drew Durning,
I didn’t say that assigning responsibility for student fees to Vince Cable was a “conspiracy”. I was arguing that the Tories craftily made him the fall guy. Had a Tory Minister taken responsibility, the Lib Dems would have been better placed, both to fight for real concessions, and to demonstrate that they had at least tried to stick to their pledge. Game set and match to the Tories.
“He implemented a graduate tax by nature but had to package it as an increase in fees” – is less than a half-truth. Yes, Cable produced a scheme that bore some resemblance to a graduate tax – but not a lot. It saddled students with real debt, it had a peculiar incidence profile which imposed least burdens on both the very rich and the very poor, it failed to raise enough revenue to do what it was intended to do. Above all it created a competitive market in higher education in which winners will have the opportunity to get very rich, and that’s fundamentally what the Tories are all about.
“Tough decision – to do the right thing knowing it will cause real political damage …. ”
Tough decision required, when you’ve done the wrong thing, sold out, taken lots of lucrative jobs in government, been damaged as a result, and need to find a good excuse to make for that.
“We could also have left the Tories to a minority government and maintained rose-smelling, self-righteous moral superiority as that instability created economic collapse…”
Others have argued that minority government would have put the Lib Dems in danger of quite the opposite of rose-smelling superiority, in fact of being routed at a second election. So, the argument is that minority government would indubitably have been terrible for the Lib Dems, either because it made us look morally superior, or because it made us dreadfully unpopular, but anyway, it would definitely have been bad for us. Even worse, obvs, than what has actually happened with coalition, viz 25% down to below 10%.
Oh, and a minority Tory government would have definitely been an unstable government. It would just had to have been, because the Lib Dems (and nobody else) would have been able to collapse it at some stage, and they would have inevitably chosen to do that, and it would inevitably have not been the fault of the Lib Dems when they did collapse it, though they would inevitably have been blamed for it all the same. Hey, masterclass in non-logic going on here!
I heard the reason they didn’t go the whole hog and call it a graduate tax is because it would have added all the historical tuition fee burden onto the deficit and would therefore have been a no-no.
Is it a graduate tax? Is it a debt? At the very least it’s an “inbetweenie”. It is a funny debt where the debt is written off after 30 years even if you haven’t paid it (and where you could pay nothing at all if your salary stays below the threshold), where the payments come directly from your salary payment and are related to your salary level/ability to pay, where you only pay 9% on the portion of your salary above the salary and where you don’t pay anything if you earn under an amount which is a little below the average UK salary.
Paul Walter
“Anbetweenie” is a very good description of the student loan debt. It’s certainly not like any other debt and infuriating that people pretend it is. However, everything you say about it was just as true of the pre-2010 system (only the numbers, as somebody says upthread, have changed); and it was in that context that Lib Dem candidates pledged to vote against any increase in fees, a fervent promise that 36 out of 57 MPs then broke just six months later, including the Leader and Saint Vince.
@Paul Walter “I heard the reason they didn’t go the whole hog and call it a graduate tax is because it would have added all the historical tuition fee burden onto the deficit and would therefore have been a no-no.”
I don’t know about historical tuition fees, but I think Browne dismissed a graduate tax because the revenues would come a few years down the line so would not pay for further education now. That confuses me a bit since the same is true of the current system, so I guess that the difference is in the way current expenditure and future revenue are accounted for under the two approaches (e.g. maybe a loan has some notional present value as an asset that cancels out the costs appearing in the deficit while future tax revenues do not).
Fees, loans and debts create a market, whereby stronger universities could command higher fees. A graduate tax (unless specially tweaked) would mean uniform treatment for all graduates, hence avoiding the competitive situation the Tories were so keen to establish.
True, the Tories’ hopes that the universities would charge differnetial fees and set off a competitive race were not realised – at this stage. Give it time. The necessary groundwork has been done and the graduate tax idea has been scotched. The Coalition has left the legacy it wanted – a marketised economy, with inbuilt provisions (such as TTIP) to make it irreversible. Thanks Nick, thanks Vince, thanks all those nice centre-left people who have grumbled but soldiered on.
@Paul Walter “Is it a graduate tax? Is it a debt? At the very least it’s an “inbetweenie”.”
It’s definitely an “inbetweenie” of some sort, but I’m not sure what it’s in between!
It’s not a graduate tax (not restricted to graduates and not a tax). Lord Browne’s report explained why his proposals were different from a graduate tax and why the latter was rejected (though an interesting piece at http://martinbudden.wordpress.com/2010/10/14/browne-report-and-graduate-tax/ suggests that only a rubbish version of a graduate tax was rejected).
A complicated repayment mechanism that is collected through the tax system for those who work in the UK does not mean it is not a debt, just that it is a very complex one! The debt grows if not repaid, it can be paid off early, or avoided by those with the financial resources to do so (as I suppose was always the case with student loans before top-up fees). However, the lowest earning graduates could consider it a gift or a benefit.
And to echo Malcolm Todd (who I guess was echoing me), the mechanics are the same as those we opposed before the 2010 election. We did not tell voters that the only reason Labour’s system was not a graduate tax was because the loan was not big enough so I don’t think that attempting to label the new scheme as such is a good move for Lib Dems.
Matthew Huntbach regularly mounts the best and most coherent (but reluctant) defence of the new system, but it’s a difficult sell for the party. On the issue of tuition fees, senior Lib Dems dug a big hole at the beginning of the coalition if not before) and still haven’t put their spades away, let alone worked out how to climb out.
For the record, I wasn’t opposed to tuition fees before 2010 either. 🙂
Well I haven’t “grumbled but soldiered on”. I think this is a perfectly sensible policy under the circumstances of the coalition. Nick Clegg is perfectly right to speak about it in the magazine interview.
Back on the subject of mortgages for those with tuition fees debts, the Daily Mail reports,
(http://www.dailymail.co.uk/news/article-2838631/Graduates-facing-mortgage-timebomb-university-debts-having-applications-turned-9-000-year-tuition-fees-saddle-high-debt-repayments.html)
For those who prefer the Independent to the Daily Mail,
(http://www.independent.co.uk/news/education/higher/tuition-fees-three-quarters-of-students-wont-be-able-to-pay-off-their-debt-9866446.html)
The SNP and Alex Salmond have always been against tuition fees and they are dominating Scotland. The LibDems used to be popular, then broke their pledge and have been pretty much smashed in every election since. Some studies have shown that between 50 – 75% of debt will never be repaid, but that still means it will be hanging over people for 30 years. Now we have the above reports about the debt making it difficult for people to get mortgages, it does make you wonder why the LibDems deserted their policy so readily.
Thank you Peter,this was exactly the situation I was predicting and explaining in my second comment on this thread – to save scrolling it read:
“It seems to me that a typical student from this cohort will end their 3 year course with a loan of about 45,000 (including interest charges over that period of RPI + 3%). What interest rate will this attract?
It seems to me that a student will have to be earning around a similar figure (a coincidence) £45,000 for any repayments ie 9 % of £24,000 to actually reduce the capital sum they owe. If s/he earns less than such a figure but more than £21,000 their debt will be increasing each year.”
Even more evidence that Nick and his team totally mishandled the tuition fees pledge from every possible angle. In one fell swoop he chose to break a pledge, destroyed the trust we had built up over decades, landed students with crushing debts for the rest of their working lives, created a system that will not pay its way and pretended that apologising was enough. His incompetence has led to the collapse of the party in most of the country, the loss of half of our councillors (so far), and through his disdain for people who believed politics could be better and we would change it, has helped engineer the rise of UKIP and the SNP.
He should have resigned in disgrace a long time ago, definitely after the Euros, but still he clings on. Those who support him still have much to answer for.
@Daniel Henry
I’m sure your mortgage calculator doesn’t ask you if you eat steak either, but the fact is that your diet is an important part of the mortgage equation post MMR (Mortgage Market Review).
This lifestyle intrusion was widely publicised at the time it became operative (in April 2014) but I guess you were too busy electioneering to notice.
Try applying for a mortgage and then come back and tell us that student debt doesn’t figure in the lenders’ calculations.