Should we follow the Kiwis and offer discounts for graduates who pay off their student loans early?

Anyone hoping to get a university place this year is likely to be feeling anxious. With a record number of applicants and universities facing funding cuts, demand is far outweighing supply. At last year's party conference, the shadow universities spokesman David Willetts outlined the Conservative's plan to fund an extra 10,000 places by offering those with student loans a discount if they repaid their debt early.

As the general election looms and the funding crisis deepens, the proposal has come under closer scrutiny. University of Worcester vice-chancellor David Green argues that with savings rates so low, many graduates would make repaying their loans a priority if they were given discounts. However, both the university think-tank Million+ and the National Union of Students have questioned the costings, while the higher education minister David Lammy has described it as "fatuous" in the House of Commons.

The Tories say the policy would encourage early repayments to the tune of 1 per cent of the entire £30bn student loan book bringing in £300m, which they say is enough to fund 10,000 students for three years.

But there are concerns about the estimates. "We've got this thumb-in-the-air figure of 1 per cent of the loan book being repaid but we haven't seen any modelling from the Conservatives," says NUS president Wes Streeting. New Zealand introduced an early repayment discount last April with a similar target and Australia has had a discount since 1996. Both countries offer 10 per cent on any voluntary repayment over $500.

As New Zealand's discount was introduced during the current financial year, no figures are yet available on take-up. However, statistics from the Australian Tax Office – which collects repayments for Australia's Higher Education Loan Programme – are promising. Between 1989 and 2007, 17.8 per cent of the 2.1 million individuals incurring a debt made a voluntary repayment. Of the A$19.5bn (£12bn) of debt incurred during that period, A$1.4bn was repaid voluntarily. A report from Australia's former Department of Education, Science and Training showed that voluntary repayments rose after the discount was introduced and on a year-to-year basis totalled 1 per cent of the total debt accumulated from 1996 to 2004.

Kate Naughtin, a teacher from Victoria, is among those who made an early repayment. "In my first year of university I paid back some of my HECS [Higher Education Contribution Scheme] and received a discount. I had a bit of extra cash due to my grandma passing away and wanted to use it wisely," says the 26-year-old. "My brother also recently paid back all his university fees because he didn't want it over his head."

One reason take-up is perhaps not even higher in Australia is because a much bigger discount is available to those who pay up front. This discount is currently 20 per cent, but was previously 25 per cent.

Megan Bailey, a 26-year-old teacher from Queensland, chose this option. "I paid the fees every semester as I trained because the discount was 25 per cent. I paid them myself as I had a part-time job."

The university lobby group Million+ says even if the discount raises the necessary funds, it would benefit wealthier students and might encourage those who would normally pay their tuition fees up front to take out loans.

"This scheme would reduce the contributions made by wealthier students and graduates and would obviously benefit those who can afford to pay fees up front or pay off their student loans early," says chief executive Pam Tatlow. "In England, 20 per cent of full-time students do not access the loan scheme so this proposal runs a real risk of reducing the cost of higher education to those who are most able to pay,"

Willetts, however, says criticisms of elitism are ignoring the bigger picture. "People who say it only benefits the wealthy are looking at it from the wrong end," he says. "The beneficiaries are young people who want to go to university and we know that many of the extra people applying are from black and minority ethnic backgrounds and families where they are the first to go to university – they will benefit from the extra places."

Bruce Chapman, professor of public policy at the Australian National University and the brains behind Australia's funding system, says those on lower incomes are often better off not making early repayments, even taking the discount into consideration. "A lot of people say it's really unfair because the rich people get a discount. For most people, getting the discount is not a good idea because they are forgoing the interest rate subsidy of a loan that is interest free, but that is a difficult point to get across. You could never get a loan from a bank at these rates, so those who take longer to pay it off are benefiting for longer."

Over time, higher income earners who repay their loans earlier are often no better or worse off, but the discount can be a useful tool in encouraging people to repay more quickly and therefore increasing governments' cash flows, says Chapman.

News
The cartoon produced by Bruce MacKinnon for the Halifax Chronicle-Herald on Thursday, showing the bronze soldiers of the war memorial in Ottawa welcoming Corporal Cirillo into their midst
news
Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into disastrous conflicts
Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Text messaging changes as a relationship evolves
life
News
The comedian, 42, made the controversial comment following the athlete’s sentencing to five years for the culpable homicide of Reeva Steenkamp on Tuesday
peopleComedian's quip about Reeva Steenkamp was less than well received at music magazine awards
Sport
Cristiano Ronaldo in action for Real Madrid
football
News
peoplePerformer had recently been diagnosed with prostate cancer
Life and Style
food + drink
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Education

KS1 Teacher

£95 - £150 per day: Randstad Education Birmingham: Key Stage 1 teacher require...

Foundation Primary Teacher

£100 - £140 per day: Randstad Education Birmingham: We are looking for Founda...

Psychology Teacher

Main Teacher Pay Scale : Randstad Education Leeds: Teacher of Psychology An en...

Geography Teacher

£19200 - £33600 per annum + pre 12 week AWR : Randstad Education Manchester Se...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?