The left don’t get it – tuition fees are a graduate tax, not debt

Sam Ancliff February 21, 2018 1
The left don’t get it – tuition fees are a graduate tax, not debt

Yet again university tuition fees are being discussed across the political arena. Jeremy Corbyn’s flagship policy (that turned out not to be an actual policy, just an ambition) during the 2017 General Election certainly catapulted the topic into the limelight and the subject of tuition fees have never truly left people’s lips for long.

Most recently, Theresa May has suggested that tuition fees may change after announcing a review into the system. Labour gained much support from younger voters in the last General Election after pledging to scrap all future tuition fees and implying that he would erase the historic debt. Some Conservatives have suggested reducing the cap down to £6000 per annum and in the last budget, the Government increased the repayment threshold to £25,000, meaning people can earn more before they start repaying thus reducing the total amount payable for all but the wealthiest graduates.

But are we looking at tuition fees the wrong way, particularly student loans? The current system of “student loans” means that there is no loan at all, it would be more accurately described as a graduate tax, after all, the “loan” is not a debt in the sense that you are under a legal obligation to repay the full amount unless you are earning an exceptionally high salary. The way that it is levied is in the form of a pseudo-tax, your employer is required to deduct 9% of your earnings above £25,000 and use that as a payment towards your student “loan”, the more you earn the more you pay. If after 30 years you have not repaid the full amount, then the remaining amount is wiped off and nothing further is payable. Therefore, it is not a loan, could you imagine car finance or a mortgage “wiping clean” after 30 years, regardless of whether you have paid a penny or not?

It is also a tax in another sense, in that with a normal tax taken directly from your income, such as Income Tax or National Insurance, the amount is deducted from your gross earnings, the same applies to student loan repayments. This means that if you are a graduate earning £30,000 before tax (£5000 above the repayment threshold) you will pay £450 a year in student loan repayments, with NI and PAYE considering as well, you will be left with just £23,231 a year.

2010 protest against tuition fees increase 

If the system was changed, so that repayments were taken after tax, the same person on £30,000 a year (gross) would pay nothing towards their student loan. In fact, if loan repayments were taken after tax, you would not begin paying your Student Loan until you are earning just below £32,000 a year, this would also have the added affect of extending the amount of time it would take to fully repay the loan for the wealthiest of graduates, so those who would have previously repaid their loan in full in 20 or 25 years would be paying for longer, meaning the system will work as it was originally designed to and that is to facilitate poorer and more disadvantaged young people being able to go to university by subsidising the cost with higher earning graduates. This also means that the policy would be largely cost neutral.

Having higher earning graduates pay more also has the added effect of preserving the arts, a medical graduate or a scientist will usually earn far more than an art graduate, yet if that art graduate was expected to pay the same amount as a doctor it would discourage people from studying the more vocational subjects that do not necessarily lead to high paid work.

Tuition fees need many overhauls, but one key step in the right direction should be changing how we will pay our contribution towards our post 18 education, right now we have what is effectively a tax on a tax and changing the system so that we pay after tax would save many young graduates hundreds of pounds a year, money that can then be reinvested in the economy in other ways such as by helping them afford to buy their first home.

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  • evilcapitalist

    In the plan 1 loans you pay an additional 9% over 18k!