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Alan Ryan: A student debt of £12,000 is an astonishing bargain

Thursday 20 June 2002 00:00 BST
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Universities are waiting for the results of the public spending review in a state of quivering anxiety. Week after week, reports are published that show how bad the underinvestment in teaching, research, salaries and administrative skills has been. Meanwhile, students and their representatives continue to hope that someone else will pick up the tab for their education, when it looks like an increasingly forlorn hope.

But students should relax. And what they ought chiefly to relax about is the size of their so-called debt when they leave university. They should think instead of the size of the debt when they arrive there. We are at our most expensive in our demands on the welfare state when we are young and when we are very old. Something like 40 per cent of what most of us cost the NHS is incurred in the last year of our lives.

By the age of 18, new students will have had 13 years of education and 18 years of healthcare to which they won't have contributed a penny. They've been defended against crime and foreign enemies. How much of the bill their parents have paid depends on how well off their parents are, but the £12,000 of student loans that many will soon take out pales into insignificance in the face of the £100,000 – plus interest – that they already owe society.

Of course, nobody is going to come round with a demand for the money, so it doesn't feel like debt. And it doesn't directly get paid back to the people who coughed up the money in the first place; so far as education, police and defence go, each generation pays its debt by coughing up for the next, although in the case of health your middle-aged self will be paying the bills of the old people who previously paid your childhood bills.

And how is it done? By taxes. So new students should next try to think of the repayment of student loans as extra tax – because that is what it is. If that is a stretch, they might think of a few more numbers, and try some desensitisation therapy. Over a working lifetime of 35 years, someone on average earnings pays more than £500,000 in tax and National Insurance. So, when a student graduates they are staring at a potential bill for half a million pounds. It is what they owe society for the welfare state, crime control, infrastructure, defence and so on that society will provide for them over the next 35 years.

Are we terrified at the thought of owing the government so much money? Not in the least. Why not? Because we know two things. First, we pay as we go; we are never going to be asked to pay a lump sum of this size. Second, we know that what we pay depends on what we earn; if we are out of work, we get benefits; if we earn less than average wages, we pay less, and if more, we pay more.

Back to student loans. They are in the same category. Payments are income-contingent. If you earn nothing, you pay nothing. They are not like mortgage payments, where if you pay nothing you lose your house; and they are not like loans from your local loan-shark, where if you pay nothing you lose your life rather than your house. Moreover, the surcharge is fairly gentle. They don't kick in until graduates make at least £10,000 a year, and then they kick in at 9 per cent of the income above £10,000, not at 9 per cent of total income. There's much to be said for making repayments gentler still; for instance, by starting with a lower rate and increasing it as income rises, or by starting at a higher figure than £10,000. There is even more to be said for making loans much larger, so that they provide enough to live on and cover tuition fees, and for charging interest at the bank rate, not inflation. But seen as an income-tax surcharge, repayments are very small beer.

For someone on average earnings – and graduate average earnings are at least 15 per cent more than that – £12,000 on top of the £500,000 of their future liabilities is peanuts. And thought of as an investment in the future, the £12,000 remains an astonishing bargain. The average student will make at least £270,000 more over a lifetime than the non-graduate on average earnings; anyone who could buy an annuity of £7,714 a year for a down payment of £12,000 would worry about the sanity of the enterprise offering the deal.

So the moral is; fill up on whatever cheap money the Government will lend you now, and let your 40-year-old self worry about the extra penny on your tax rates.

The writer is warden of New College, Oxford University

education@independent.co.uk

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