10 comments on “Timmy elsewhere

  1. Given that nobody pays back anything of their student loan before they start to earn GBP 21,000 (indexed, I believe) and the repayment is based on a percentage of salary (9%), the ”loan” is more like a contingent liability than debt, and the repayments are more like a graduate tax. Will Hutton is just spouting the usual load of innumerate, ignorant tosh.

  2. Actually Tim, I don’t think he’s saying that.

    It is very difficult tomknow what exactly he is saying but, I think he’s pointing out that the narrow economic benefits to the indivdual don’t make it worth the individual’s while to go to college. This (so his argument goes, if indeed it is his argument) masks the great – if regrettably unmentioned – social benefit to society of having a vast cohort of liberally educated young people ready and willing to take on the world, spread British cultural influence etc with their arts-based degrees (but probably without a grasp of basic grammar). Ergo this is why the state should be funding those degree courses.

    I personally thinks it’s total bollocks, but I do think that is what he is trying to say.

    Mr Hutton, if you’re reading, I am available – for a small fee – to edit your bollocks, sorry, articles.

  3. Agree with Ironman.

    Also, there is a massive point about expectations and class mobility here. Widdershins is correct that (UK model) student debt isn’t real debt, because you don’t have to pay it back unless you can afford to.

    But families who don’t have money looking into the benefits or otherwise of going to uni don’t see that – they see the kind of debt which, if you owed it on a credit card whilst earning a low income, you’d be fucked. So they’re scared off, and don’t go, despite the fact that it’s in the kid’s long term interests.

    (obvious solution is to create something economically identical and call it a graduate tax; the only reason I can think of to not do this is because scaring working class kids out of education is seen as desirable by middle-class voters…)

  4. @John B ‘But families who don’t have money looking into the benefits or otherwise of going to uni don’t see that – they see the kind of debt which, if you owed it on a credit card whilst earning a low income, you’d be fucked.’

    The kid makes the choice, not the parent – and if the kid can’t see these benefits* then he or she isn’t really university material.

    Not to mention, some people who we’re assured have a horror of student debt do seem to be happy to run up their share of the nation’s billions of pounds in household debt on credit cards.

    *It’s also becoming increasingly debatable as to whether going to university is in the student’s long term interest. If they’re going to Oxford, Cambridge, Warwick, Manchester etc then it certainly is. London South Bank University or Bolton University it may not be.

  5. john b :

    I wondered too why not have a graduate tax, with capped total repayment (so nobody ends up paying a million pounds for their degree) and the cap being inflation adjusted (since 9k of tax in twenty years time won’t pay for 9k of education now). I figured this would look ‘fairer’, is less offputting to poorer or less financially educated folk, also importantly is more accessible to students who wish to avoid debt/interest for religious reasons (dont think the SLC is completely halal for instance).

    BUT on closer examination there are serious flaws in my plan. Quite a lot of British graduates emigrate at some point and leave the UK tax system, whereas repayments on debt can be enforced elsewhere. We could do the US (and Danish, iirc) “tax our citizens globally” thing I suppose but that’s quite a shift. Worse, there are hundreds of thousands of EU students entitled to student loans, can’t be taxed on a citizenship basis and most haven’t stayed in Britain so can’t be taxed on residency.

    So debt and tax approaches can’t be made legally and economically equivalent. There’s a tradeoff involved and I’d grudgingly acknowledge that calling it debt is probably the sager policy. If your estimate of the social costs of ‘offputtingness’ is higher than mine you may well lean the other side of the fence. But my reckoning is that working class participation rates are hammered more seriously by low expectations and patchy secondary and further education provision (some good, some crap). Also fear of student loan is irrational for reasons you state (as is love of putting stuff on the credit card for many people!). I know not all irrationality is magicked away by being better informed, but there is a prima facie case for more financial education which may reduce offputtingness.

  6. Interested:

    While uni makes a difference, some professions are graduate only and the brand doesn’t matter so much. Met an NQT (primary) few years back who graduated from South Bank Uni and her financial future was in principle no better or worse than a new teacher from Homerton, Cambridge.

    Strongly disagree re someone who doesn’t understand debt being ‘not uni material’. Firstly it’s lack of education not intelligence.

    Secondly finance is actually quite unintuitive, especially to those who can’t break it down mathematically (classic trick question – do you get more money in your account if interest rates are 10% one year, 2% the next, or the other way round? Lots of people incorrectly reason you get more with 10% then 2% than 2% then 10% since it means there is more money in the account to earn interest in year 2). And there are various cognitive biases eg about time discounting. Not everybody is a mathematician and even those fluent with numbers don’t always think rationally.

    Thirdly, linguistics – debt is a scary word, just think what words are collocated. Debtor’s prison. Poverty. Bankrupt. Loan shark. Extortionate. Debt recovery. Bailiff. Now tax isn’t fun (and if self employed it really can be taxing!) but its perception is dull, bureaucratic, a nonkinky shade of grey. It’s not scary, and nobody avoids uni on the (logically correct but irrational grounds) that the expected net present value of the time series of their income tax payments will jump up by tens or even hundreds of thousands of pounds, due to their improved career prospects.

  7. “whereas repayments on debt can be enforced elsewhere”

    Can they? I’d paid off my student loan long before I moved to Aus, but does the SLC really enforce it overseas…?

    Otherwise agree completely. The suggestion that every 17-year-old who is reasonably good at some academic or semi-academic pursuit should have an understanding of the principles of finance, debt/tax equivalency, discount rates and lifetime incomes, and should (effectively) be punished if they don’t, is fucking crazy.

    (and of course, middle-class parents are far more likely to provide sensible advice on the issues above than parents who themselves have limited financial literacy…)

  8. John b – how effectively they enforce it I’m not sure, certainly some people regard emigration as a way to escape repayment, but in principle they do. They even provide different repayment thresholds for different countries to take account of the cost of living.

    I suspect if someone really wanted to evade repayment they probably could but there’d be difficulties on coming back to Blighty.

    (There is another point about the tax/debt difference, which is in the accounting. Somehow a future income stream managed by the government has to end up paid to the educational institution as a lump sum now. I can imagine a policy preference to do this via the student having a personal debt and their contribution being seen as repayments, than for either the govt or uni to be borrowing against future ‘tax’ receipts. But I’m not sure how important this consideration is in practice; ability to extract some if not all money from those outside the UK tax system ought to be pretty remunerative if some effort is made. Would be interesting to see what system the Scottish govt settles down on for ‘graduate contribution’ to get around the fees issue.)

  9. MyBurningEars,

    Can you spell out your percentage answer for a dummy like me? I get 112.2% both ways.

    Aren’t we just multiplying 1 x 1.02 x 1.1 then 1 x 1.1 x 1.02 and showing that multiplication is commutative?

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