The Guardian, FT and others have reported this morning on a new report from the Institute for Fiscal Studies on the cost of student loans, which is another ongoing neoliberal scandal within the UK economy.
The details of the report do not matter greatly. What the IFS suggests is that because of the rise in interest rates, the government is now bound to lose money on student loans in the future. The obvious conclusion is that, yet again, we need to return to an era of near-zero interest rates because nothing else serves anyone in society so long as high taxes on wealth suck the unearned gains to those with assets back into the public realm. The IFS do not say that, of course.
But this opened another question for me. I have been wondering whether to include student loan repayments in the Taxing Wealth Report 2024 since they are, in my opinion, a highly discriminatory tax that few with real wealth pay as the wealthy cover their offspring's debts.
So, a few questions:
Are student loan repayments a tax by any other name?
- Yes (90%, 418 Votes)
- I don't know (6%, 29 Votes)
- No (3%, 15 Votes)
Total Voters: 462
Loading ...And then this:
Are stiudent loan repayments a regressive tax on those without the wealth to pay their student fees when at university?
- Yes (93%, 423 Votes)
- I don't know (5%, 22 Votes)
- No (3%, 12 Votes)
Total Voters: 457
Loading ...And finally:
Should I refer to student loan repayments as a tax in the Taxing Wealth Report 2024?
- Yes (84%, 382 Votes)
- I don't know (13%, 58 Votes)
- No (4%, 16 Votes)
Total Voters: 456
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Simply a tax on knowledge.
What could be better for politicians who rely on misinformation and false promises?
“There is growing concern about the sustainability of the higher education funding system and the burden of debt on students…”
As 83% of student loans are never repaid, the whole loan scheme is ‘fiction’.
Tony Blair’s plan to send 50%+ of students to university has devalued degrees.
Large numbers of graduates with 5th rate degrees, of little vale in the job market, from 5th rate universities and hugely in debt are wondering why they bothered to go to uni. The UK should be following the successful examples of Germany, Austria, Denmark etc & encourage more students into vocational qualifications that are free to study & more relevant to employment.
https://www.theguardian.com/education/2019/may/14/most-people-dont-understand-how-student-loans-work-this-must-change
Your second para is key
I seem to recall it was Thatcher who shut down state training for the trades, I gather in the foolish expectation that industry would shoulder the burden itself. Instead it hired in cheap workers from abroad who were already trained, precipitating in part the anti-immigrant sentiments so prevalent today. I rather think Thatcher never understood capitalism, but it certainly understood her.
I do not think Blairs plan was necessarily wrong, to be honest. The FT has covered how chronic underinvestment (thank you, Cameron-Osborne) has led to way less growth in candidate job positions, compared to other nations that have had similar growth in graduate positions. That is what has led to graduates working retail. Though the large service economy was probably a mistake to promote via deindustrialisation.
Education inflation seems somewhat inevitable, but 50+% shouldn’t necessarily be promoted through policy, I will say.
Yes, Yes, Don’t know.
Why “Don’t know”?
Student loan repayments act like a tax, but the loan book has been / can be sold to the private sector. Can a tax be collected *and utilised* as private income?
Yes, in a word
Student loans are certainly a concept which has been used to justify a form of taxation, but one applied very oddly. To my way of thinking the availability of higher education is more of a public benefit than an individual benefit: the wider economy needs those who can to develop advanced analytical and specialist knowledge and skills, but it isn’t necessary for an individual to live a rewarding life in decent conditions.
Of course considered as a tax it is selective in bizarre ways. It is demanded of teachers but not of plumbers, despite society needing both professions and remunerating both roughly similarly. Which makes it difficult to say it is unequivocably regressive.
While it may be true that a few very wealthy pay “tuition fees” up front and avoid the component of subsequent taxation which corresponds to interest, the way they are structured would mean there would have to be a fuller analysis of their impact at different wealth levels. As I understand the repayment is limited to a defined period with any notional debt at the end written off; there must be some income level where the loan is exactly repaid with interest over the term, in which case higher incomes will have a net gain through not paying the interest component for so long while lower incomes will have a different notional gain through having part of their loan written off. However the latter group will nevertheless pay a high marginal effective tax rate for longer.
So while it would make excellent sense for you to include the topic of funding universities on a fair and honest basis as part of any discussion of how taxation relates to public finances, I don’t see that there is a straightforward way of arguing there is significant missed taxation of the wealthy that could easily be applied, which is the prime purpose of your Taxing Wealth series.
My concern is that student loans massively distort tax rates for some and name the system extremely unjust as a result.
The argument put forward to support student loans is that the state cannot afford to pay for the education.
This is false.
Clearly, as per recent discussions, the government can create the money if it wanted. But that is not really the point.
The real question is whether the real resources are available to educate these students. And the answer is very clearly that they are. This is obvious because we do educate all these students. We clearly have the real resources to do so.
A second argument put forward for student loans is that if the government simply gave grants and paid tuition, as it used to, then all the extra money would create inflation. This is clearly not true either because that money is, mostly, immediately spent in the economy. Creating a loan makes no difference because, as we have discussed, a load simply creates money.
With that in mind it is very clear that student loans are a regressive tax and should go.
The hypocrisy of the government in imposing such loans is very obvious. They bleat on about the need for low taxes but impose a marginal rate of tax of 20% (income tax), 12% (NI), plus 9% (student loan. Total 41% on recent students who, often, can barely afford to live (let alone pay for a family). This increases to 51% when earning exceed £50k. The government bleats on about low taxes and then imposes 51% on our young people.
You get the real point: current resources are used to educate students. The rest is financial game playing.
Richard, have you heard of a technical concept called the time value of money? It’s pretty well-known amongst economists.
For this you make sense, and to encourage investment, we need a positive real rate of return.
You appear to be arguing for the opposite. WTF?
I hear a lot of things in economics that are not true or are constructed to extract unearned gain
Tell me why the time value of money actually exists?
Why is interest banned by most religions?
I’ve always struggled with the politics and economics of this. Change in uni income statements and balance sheets were massive after the implementation of the rise in fees. What would the net effects have been on public and private sector balances if classified as government investment in society and the economy instead of an increase in student and government debt most of which was never going to be repaid?
Also, why did so many universities take on massive amounts of debt that have got them into trouble at the same time their income statements were vastly improved by increases in fees?
Not very informed questions, but I’ve long found them puzzling.
I genuinely wish I had time to answer them, but this blog is taking too much time for me at the moment. Sorry.
Cathy, I find your first question very much to the point. As you say paying for higher education is an investment in society and the economy, essential for a prosperous national future. Similar paying for the NHS is an investment in a healthy and happy population that can work productively, without having to reduce work to care for elderly parents, and with confidence in their own healthcare in retirement. Being penny pinching is counter productive.
As far as I know the answer to the second question is much more mundane. Once it was clear all universities’ fees were the same, the matter of achieving a recruitment target of students to balance the books required that they were perceived by prospective applicants to match the facilities offered by the best. Outdated student residences needed expensively refurbishing or replacing, sports and social facilities needed to look attractive, teaching facilities needed to look appropriately modern and purposeful. In some cases though they were over-ambitious and took on more debt than they could manage without affecting other expenditure adversely.
Pardon me for cynicism, but there is an alternative way in which Universities compete. That is on how easily a student can get a good degree. That is, they can compete on grade inflation.
And they do….
I dropped out of a local College of Further Ed shortly after turning 17 when I left for Spain, but if I had stayed my education would not have progressed due to my dyslexia. Although I fantasized about going to Uni my departure from the UK was an easy out and I have never resented the fact that those who qualified for a free university education got all the support they needed to succeed. This was a legitimate investment by the government with an anticipated financial return in increased taxes paid by higher earners.
Look at just one example, Paul Mason. He came from an ordinary working class background; his father was a lorry driver and one grandparent was a miner. His mother was headmistress of St Margaret Mary’s Primary School which probably helped him achieve good grades in school due to her influence. Back then women were told that higher education was wasted on them as they were just going to get married; in reality well educated women have a positive impact on their children. After grammar school Mason earned a place atthe University of Sheffield.
Paul Mason’s Wikipedia profile states that as a British journalist, “He was Business Editor of the BBC Two television programme Newsnight from 2001, and Culture and Digital Editor of Channel 4 News from 2013, becoming the programme’s Economics Editor in 2014. He is the author of several books, and a visiting professor at the University of Wolverhampton.” During his career he has earned a significant amount of money on which he has paid a higher rate of tax than if he had not had that opportunity of higher education. If he had spent most of his life as a minimum wage earner his tax input would have been less. So those who had the benefit of free tuition paid back the government in spades; they were a wise investment.
Young people who decide to go on to Uni now take on student loans not just to cover the high tuition fees, but to cover their living expenses. All too often they have to take on jobs to support themselves while trying to study, which impacts their ability to focus on their studies. If they graduate and secure a higher paid job they will not only pay higher taxes, but they will be saddled with student debt. In reality they will be paying for their education twice, once through taxes and a second time through paying back student loans. This is just one of the many ways the Tories have wrecked opportunities for young people in the UK and I hope you can correct this injustice in your taxing wealth report.
School teaches us how to learn, so despite not attending Uni I continued to learn in practical ways and through extensive travel overseas. When I settled in the US, they funded testing me for dyslexia and it opened up a few more possibilities. In America they boast that “There ain’t no free lunch” but after covering the cost of testing, they paid for me to take my US Coast Guard Captain’s license and study for an Able Seaman’s card. When I became interested in switching to a medical career, I received a Pell Grant to assist paying for tuition to become a surgical technologist. Why? It was a purely financial incentive because in the last instance I went from earning around $7 an hour as an EMT in the ED at Jackson Memorial to earning over $16 an hour as a scrub tech in the OR at Johns Hopkins and subsequently paying higher taxes.
When I returned to the UK, eight years experience in US hospitals was regarded as “baggage” and I was expected to retrain from scratch which was a total waste. At that time Operating Department Practitioners did not pay tuition fees and received a living expenses bursary, so I did eventually get to Uni and I benefited from that free tuition. A few years later the Tory Government axed the bursary for ODP’s, Nurses, Midwives and Paramedics as part of their self crippling austerity agenda. There is a desperate need for all these medical professionals, but this corrupt Tory government would rather scavenge them from developing countries that could ill afford to train them.
With an agenda that I believe is morally bankrupt, we allow this exploited cohort of “the best and the brightest” from overseas to be paid less than UK nationals. A new government needs to ditch tuition fees, just as Corbyn proposed, because young people should not have to pay for their education twice over. Investing in education and training is not a costly giveaway as it does pay off financially through a higher tax take.
I argue with one thing
I see no evidence that schools teach people how to learn
Nor do they teach people how to think
And for most people writing is near impossible. It is not conversation translated to the page.
As a result much university education fails too
Schools are badly failing us by going down the Singapore/ Korea compliance route
I totally agree with Richard – schools do not really teach you how to learn – I did not learn to learn properly until I went to Uni as a mature student in the 1990’s at the ripe old age of 29 and I kept learning after my BA on a masters course afterwards too.
The school my two kids went to was not bad about teaching them how to cope with A Levels as they both did well, but I did have a lot of input into their learning strategies – for example I encouraged them to look at past papers and revise through those (they had to ask mind) and I found audio learning (recording your learning and listening back to it) really useful as they did too – we made sure they had audio devices to do this.
My reaction to student debt is emotional – I think its an unfair imposition on young people by a country that happily relies on their labour afterwards. Disgusting.
Everyone I know who is middle class sees the student debt as a tax.
I see it as a betrayal and totally exploitative.
But it is the acceptance of this and its effects on the attitudes towards FE that worries me. In some cases choice has trumped necessity – just like markets always do.
I had to teach my sons the learning techniques you taught your two
These are basic exam techniques teachers seem utterly unaware of in a system orientated to exams
Why?
I stand corrected, perhaps it would be more accurate to say that school ‘should’ teach you how to learn. Looking back on my education in the UK it was abysmal as I was punished for my dyslexic scrambles. I remember a very rigid format by which we were expected to learn from writing copious notes and there were no multiple choice exam papers. After being indoctrinated to believe I was stupid, I left the UK with a passionate desire for life-long learning. Many skills were self taught including celestial navigation before I sailed across the Atlantic for the first time. My US training programs were well taught, practical and comprehensive, with an expansive curriculum including abundant skills practice that thoroughly prepared me for healthcare roles.
When I returned to the UK and was compelled to retrain for the NHS, I entered a University training program. With minimal accommodations for dyslexia, past training and experience was considered detrimental! The ODP course was almost entirely devoid of any discernible curriculum. Students were expected to scour ‘learned journals’ to find articles that pertained to this undefined curriculum and produce ‘reading logs’ to show they were vaguely relevant to the course in a ‘teach yourself’ program. There was a well equipped skills lab that we barely entered for brief ‘show and tell’ sessions that were almost worthless. After a few weeks of vacuous lectures on campus, students with no prior medical experience were assigned to operating theatres in local hospitals to enter clinical practice for which most were grossly unprepared.
From ‘stand and gauk’ to ‘on the job training’ from overworked staff, it did not prepare graduates for independent practice as part of the surgical team. Attending this program destroyed my fantasy about the value of University learning and left me feeling uneasy about the level of training for people currently entering medical programs in the UK. NHS nurses were always considered highly trained, but I witnessed a far greater focus on turning ODPs into academics. The expectation was that the skills to actually function in Surgery could be relegated to ‘pick things up as you go along’. Older Nurses are documenting the deterioration in training of new staff; from personal experience, I find it quite scary!
Let’s agree on should
If only they did…..
I “don’t know” is my answer. What I do know is that it is a complete mess.
Leaving aside all the good reasons why loans are a bad idea (and they are a bad idea), the way they have constructed the loan arrangements is a disaster.
First, linking interest rate payments to inflation might have seemed like a good idea at the time but events have shown this to be deeply unfair. A sensible choice might have been a rate pegged to gilt rates – the cost of funds for the government who are financing the whole affair.
Second, the sale of loans to the private sector has made any effort to remedy the first problem impossible. (If the government had held them on their own book they could have changed things… but once sold that can’t happen).
Yes the sale of loans was a huge error.
Nevertheless the government can remedy it by buying back those loans.
As we have been discussing they can create as much money as they need to do it. It wouldn’t cause inflation because that money would not be spent into the economy. They should, however, figure out how to tax and equivalent amount back in due course – Richard has some initial suggestions 😉
But they won’t do this, of course, because “they can’t afford it”.
Your second para is true.
“…sale of [student] loans was a huge error”.
Hmmmmm….. I agree it was a bad thing to do, but it wasn’t done in error, it was very deliberately callous.
Agreed
I think the purpose of student loans was to create a fiefdom which could be bestowed on the private sector and the booty shared later on via appointments as consultants, non-executive directors etc. Predation as an explanation for seemingly inexplicable behaviour rarely fails with this lot.
You may well be right
“A tax on ambition and aspiration aimed directly at the poorest in society”.
Short and sweet
I prefer the term ‘social extraction’. Education is a public good and extracting money from it (particularly to a private purse) diminishes our social wealth. The extraction is particularly egregious as it is rigged to limit social equity. We should stop using the term ‘tax burden’ and instead say ‘social investment’.
As Martin Lewis also says i would be better if we called it a Graduate Tax rather than a Loan.