Student Loans: Buying An Education Or Selling Your Future?

student debt - Banksy
In 1998 the UK Labour Government introduced tuition fees for students in higher education to help fund the costs of providing undergraduate and post-graduate degree courses: students were expected, for the first time, to pay up to £1,000 each year towards the cost of their education.

Six years later, in 2004, the fees were trebled to £3,000 per year, and in 2012 the fees were trebled again (are you seeing a pattern here?), meaning that a three-year undergraduate degree now came with a £27,000 price-tag for tuition alone: the same three-year degree course which, just 14 years earlier, would have cost them nothing at all…

Maintenance Grants

Jumping back in the time-machine, UK students used to receive a maintenance grant to cover their cost of living while they were studying: a non-repayable grant to pay for accommodation, food, books, travel & entertainment. In effect, they were paid to study. My dad was one of them, and for him it was the difference between attending university and not.

Later, “means tested” maintenance grants were introduced, meaning your parents’ income was taken into account to determine how much you would receive from the government and how much your parents were expected to contribute towards your continuing education.

Maintenance grants are still available today, but only if you come from a very poor background: now your living costs have to be met by a maintenance loan of up to £7,751 in London (because it’s more expensive to live in the capital) and £5,555 in the rest of the country.

Of course, that’s not enough to cover ALL your expenses – the maintenance loan may cover the cost of your accommodation, but not much more – and that means that, unless you are fortunate enough to be able to find a part-time job to supplement your income, you will need to borrow money from your parents or get an overdraft to make ends meet.

What I find interesting is that less than a generation ago the cost of higher education was fully-funded by income tax, whereas now, many newly-graduated students will leave university with the same degree certificate, but with the added bonus of a £60,000 debt hanging around their necks.

Of course, I realise that our American readers will be green with envy when I tell you that the loans are scheduled to be cancelled after 30 years, but please bear in mind that the marketing gimmick currently being pedalled by the media that “most people will never fully repay the debt” is clearly not sustainable in the long term, and we all know how easy governments find it to change the rules when it suits them: in exactly the same way that tuition fees have increased (and will continue to increase) and the same way the pensionable age has risen (and will also continue to rise, due to our ageing population), I think that it is extremely unlikely that the plans to cancel outstanding student loan debt after 30-years will remain in force for long, particularly when the loan companies start to lose money.

I will certainly be returning to the topic of student debt in future posts because I believe personal debt — in all its many forms — will have massive implications for the Millenial generation, and I think we are being set up for a lifetime of debt slavery unless we stop to think about what we’re getting ourselves into. Free university education meant that our parents and our grandparents were not saddled with huge debts when they graduated, and that enabled them to start families and get a foot on the property ladder early in their careers: times have changed.

For now, let me just leave you with a graph.

The claim by the media is that most people will never pay off their student loans. I would argue that what is closer to the truth is that they will never be ABLE to pay it off: with student loan interest levied at 3% above inflation, and taking into account historical inflation rates over the past 60 years, the initial £60k debt I mentioned earlier, if left to its own devices for 30 years, would balloon to over £845k by the time it reaches “maturity”.

Compound interest is a beautiful thing, isn’t it…?

compound interest
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