Well, obviously, yes

Student loans must be added to the deficit, the Office for National Statistics has said, as almost eight in ten graduates never pay it back in full.

The new accounting system, which comes into force next autumn, will be a blow for the Treasury as it will leave a £12 billion hole in public finances, according to official forecasts.

The ONS will now split the loans into two parts – financial assets and government expenditure. It marks a break with the current system where student loans do not count as government spending, despite the fact that many graduates do not earn enough to re-pay the loan.

“The design of the system means much of this student loan debt will never be repaid, and is therefore written off by the government,” said David Bailey, head of public sector division at the ONS.

My only confusion is why wasn’t it treated like this before?

38 comments on “Well, obviously, yes

  1. All this faffing about and expense, just so Tony Blair could keep lots of useless idiots off the unemployment register.

  2. As almost eight in ten graduates never pay it back in full

    This statistic alone is enough to show how pointless it all has been. My student loans came to ~£21k (will be paid off this year, 7 years after graduating). If eight out of ten graduates cannot pay that back then university has had zero impact on their potential earnings. Eight out of ten graduates should not have gone to university.

  3. I probably made a mistake in paying mine off in full when I could, just to escape the annual paperwork.

  4. @abacab

    It’s paid back at 9% on earnings above £25k (on “Plan 2”, which has been in since 2012).

    Interest is charged at a minimum of RPI up to RPI + 3% if you earn over £45k.

    The loan is w/o after 30 years. Someone earning (say) £35k who ran up a £30k debt is never going to repay it. The repayment of £900 a year will be less than the interest being charged if RPI is 3%.

  5. “…almost eight in ten graduates never pay it back in full.”

    …and compare this the the Swedish system the free education types like referring to.

    In Sweden you ALWAYS pay back your student loans. They’ll even take it from your benefits (or pension, if you’re a slow payer). A friend escaped to the UK for 10 years or so, came back with two kids and had her housing benefit deducted for the loan.

    Why don’t we have the same system?

  6. @BiG – I paid mine (£11k) off fairly sharpish, largely to escape the incompetence of the Student Loans Company. I was fed up with ringing them up once a month to pay it off on the credit card, and having to chase them up for simple things like receipts… And the number of phone calls it took to get them to issue a statement saying that we were done once it was paid off was quite astonishing (particularly given that it was asked for when I made the final payment).

    @AndrewC – that’s quite mad. So it’s basically a “successful graduate tax c/w unsuccessful graduate subsidy” system. STEM funding mickey mouse again.

  7. One of the many advantages to the OU is that it’s pay-as-you-go. So you’re not beggaring the taxpayer and the costs are very real and immediate to OU students – which weeds out most people who just want to fart about.

    If we’re ever going to rid ourselves of this insane malinvestment in unemployable basket weaving studies grads, let’s see what we can borrow from Sir Lenny Henry’s alma mater.

  8. MrsBud paid hers off in 2 years as we were income splitting through the family trust. Still tax efficient compared to me paying tax on all my earnings. But then we’re evil tax avoiders.

  9. I paid off mine two years ago to avoid the hassle while working overseas, and also as it was almost gone by then (I probably would have paid it all a year of two earlier if I hadn’t quit my previous job and spent a year doing teacher training.)

    James Dellingpole did an interesting podcast a few months ago with the author of a book called ‘The Great University Rip-off’, his summary was basically unless you want to study a serious subject at a serious university, it’s not worth going.

    He also pointed out that 50% target of school leavers was copied from countries like South Korea and japan which have a similar %, but there the majority are studying technical subjects not the useless stuff UK students go for.

  10. Remind me. Tony Blair abolished student grants, in spite of a promise not to: is that right?

    Student loans already existed when he took office, so he presumably increased the size of loans to make up for the abolition of grants?

    Maybe we should go back to the good old days with less than 5% of the cohort going to university. But I’m not a reactionary, oh no. I wouldn’t insist on Latin for admission. I would insist on a decent standard in maths though, and at least one modern language that is not the applicant’s mother tongue.

    A spot of science too? One argument would say “settle for physics”. Another argument would say that a bright boy – or girl – could teach himself much of physics from books, but to learn some chemistry you really need to do some lab, therefore demand chemistry for admissions. A finely-balanced argument I’d say. Views sought on biology.

  11. @ Andrew C
    If someone is earning £35k in year 1 and £35k in year 30 instead of £85k then they are really badly off. You need to model earnings pattern over the career including salary inflation as well as salary progression.
    Of Course ONS is right, but I would want to know what assumptions have been made to draw the conclusion that 70% will only repay part of the loan? Is it that 56% of current students will stop work when they have babies and one-third of male students will go into teaching

  12. I guess the reason why this was not done before was because some politician was trying to pull a fast one. Well done to the ONS only taking 8 (or more??) years to notice this. We have only had 2 or more elections since this started.

  13. So 80% don’t pay them off, so have gained nothing from having gone. 50% go to uni nowadays, so my maths suggests that the old way of sending 10-15% of young people to university was the correct policy……

    I also have this theory that the university con is one of the great social dividers in society today, and is probably one of the causes of the whole Brexit/EU or Trump/non-Trump divide in society. I have a friend who is a bit lefty (tho not a twat) and one of his pet hobby horses is the fact that he passed the 11+ and got to go to grammar school and university, while his siblings didn’t and he ‘got on ‘ in life, and they didn’t. He considers it appalling that society was divided into sheep and goats at such an early stage, an elite sent off to succeed and the lumpen masses sent to stay lumpen. I can see his point (though why he’s moaning about this now when we’ve had 40 years of comprehensive education system I don’t know).

    Anyway, it set me thinking that actually, we now do worse than the 11+ with the uni/non-uni divide at 18. Under 11 plus, about 25-30% went to grammar schools and had the advantages of that, and probably university education as well. The other 70%+ didn’t. However far more jobs and careers were open to those 70% than the 50% currently who don’t go to university, as now all the ‘good’ jobs require a degree. You can’t go in as a trainee and work your way up in the way you could then. I think of my friend who left school at 18, got a series of basic jobs, studied accounting in her spare time, got a series of basic accounting jobs and ended up as senior management accountant at Intel, and was headed for stratospheric things had she not had an epiphany and decided the corporate life was a soulless dead end and jumped ship to open a restaurant. All without a degree, but a lot of ability and hard work. She couldn’t have that corporate career today, she’d need a degree to get in anywhere.

    And so society is now divided down the middle – the uni stream, and the non-uni stream. A decision made at age 17 defines your whole life. All the good jobs go to the uni stream (tho not all of them get good jobs, which is another source of discontent), the other half of society have to scramble with the mass of new immigrants prepared to work for peanuts to try and get a decent paying job. A few can operate in the self employed sphere and make some decent money, a good 30-40% are the ones being left behind, with a iron ceiling (‘no degree? then f*ck off!’) above them. Minimum wage and zero hours contracts is their world.

    A graduate of the University of Not Even Bog Standard with a degree in Basket Weaving is today a superior (in the job market) being to a bright 25 yo who for whatever reason didn’t go to uni. The former has the opportunity to get into all manner of white collar jobs, the latter has no chance. And we wonder why there is such a split in society…………

  14. @Jim: counter-example – one of my cousins didn’t go to university and is now minting it as a carpenter/joiner.

  15. “one of my cousins didn’t go to university and is now minting it as a carpenter/joiner.”

    Well I did say some of the 50% non-uni stream can make it in the self employed sphere. But there is a catch with the trades – you’re using up your physical capital. Yes a 20/30/40 something can make good money as a tradesman. But when you hit 50 the body begins to rebel. All those years of hard graft leave it knackered. You can’t go on earning right through to retirement like an office worker can. Either you manage to make enough money in the decades prior to 50 to see you through, or you manage to build up your business to the extent you’re paying other younger men to do the work and you sit in an office. A 50 something tradesman still reliant on his body to make his wages is on a hiding to nothing.

  16. Jim – A graduate of the University of Not Even Bog Standard with a degree in Basket Weaving is today a superior (in the job market) being to a bright 25 yo who for whatever reason didn’t go to uni.

    I dunno how true this is though.

    There’s definitely something to your point, but graduate salaries have been a pittance for many years now, related to the ever-increasing competition for graduate recruitment jobs. And it’s a hard slog up the ladder from there.

    By contrast, a bright 25 year old school leaver will probably have more work experience, skills, and contacts than a graduate of the same age.

    It’s true that having a Desmond in Windsurfing Studies from Scumbag College makes it somewhat easier to obtain a white collar, middle class lifestyle. But it’s very far from being a sure thing, and will continue to get less sure as technology, globalisation, etc. do their stuff.

    Employers are simply using university degrees the way they used to use A levels, i.e. a quick way of cutting down the inbox of applicants. If we changed the way we “do” higher education, employers would simply change the way they recruit.

  17. Jim has it spot on.

    I know the self employed sparks and chippies caning it in their mid-20s, and the ones in their fifties that scraped their shin on the scaffolding last year and it still hasn’t healed properly.

    “And so society is now divided down the middle – the uni stream, and the non-uni stream. A decision made at age 17 defines your whole life. All the good jobs go to the uni stream (tho not all of them get good jobs, which is another source of discontent), the other half of society have to scramble with the mass of new immigrants prepared to work for peanuts to try and get a decent paying job. A few can operate in the self employed sphere and make some decent money, a good 30-40% are the ones being left behind, with a iron ceiling (‘no degree? then f*ck off!’) above them. Minimum wage and zero hours contracts is their world.”

    Absolutely.

  18. “There’s definitely something to your point, but graduate salaries have been a pittance for many years now, related to the ever-increasing competition for graduate recruitment jobs. And it’s a hard slog up the ladder from there.”

    Oh, I don’t doubt that its no easy ride, but that its not a ride you even get on if you don’t have that bit of paper. 50% of the population are excluded so the holders of those bits of paper don’t have as much competition as they would have had – a graduate entry years ago had to compete with the A level intake, who’d already been 3+ years involved the the actual day to day work of the organisation, 3 years of networking too.

    Hence why the degree brigade are so self satisfied and smug – they think they’ve ‘risen to the top’ on merit, when what they’ve actually done is eliminate 50% of the competition at age 18 at a stroke. Many of whom could have kicked their arses, if they’d been given the opportunity to do so without a degree.

  19. To contrast the comments above I share an example of my friend who avoided uni, started working in software sales and is now earning big bucks, just under 10 years later. Out-earning maybe 90% of graduates? It’s very difficult to do but you’re not de-facto written off without a degree.

  20. Jim: re jobs “requiring” degress: too true. I keep a ‘rant’ file of office admin-type job vacancies that demand degrees. Cut’n’paste from a reg post:

    Service Desk Analyst
    To succeed in this role, you ideally should have a degree in computer science

    WTBF??? So a Computing Science degree course is training to be an IT monkey? WTBF are they teaching in CompSci degree courses today????

    Service Desk Analyst
    To be successful within this role you will ideally have: A degree in computer science or from a relevant discipline.
    WTFF???

    IT Service Desk Analyst
    Key Skills: A degree or equivalent in a Computer Science/IT/STEM related subject
    WTBFF?

    “IT” is ****NOT**** “coding”. They are falling for the fallacy of confusing driving a car and being an automotive engineer.

    Most “IT” work is just plain simple office admin. It’s technical labouring. It’s moving boxes, plugging things in, changing printer cartidges. 50 years ago this would be “office supplies”.

    These adverts are either saying that a computing science *DEGREE* *COURSE* is spending 30 grand of your money teaching you how to change a printer cartridge. Or that employers want to take on degree-qualified engineers to change printer cartridges. I don’t know which is worse.

  21. As much as I agree with the general sentiment, 8 out of 10 isn’t really the right figure to use. Many of those 8 will repay most of their loan. Full repayment is not necessarily the aim of the policy.

    Especially given that RPI+3% is a stonkingly high interest rate without the escape of bankruptcy (more like a tax in many ways as we all know).

  22. “8 out of 10 isn’t really the right figure to use. Many of those 8 will repay most of their loan. Full repayment is not necessarily the aim of the policy.”

    Surely the point of a degree is to raise your career earnings. If it doesn’t do that to the extent that you can repay the entire cost of getting that degree over a career, then it wasn’t worth it, and the individual would have been better off not getting into that debt, and not paying back all that money. So if 80% aren’t repaying in full, then odds are that most of that 80% would have been better off not going to uni at all.

    Lets be generous and say of the 80% half had their career earnings enhanced by their degree, but not by enough to pay it back. That leaves the other half, or 40% of the total who really should not be going to uni at all, its an actual loss to their career. Which in turn means that uni should be scaled back to about 30% of the age cohort, for the most intellectual students, studying the most rewarding degrees, and if you want to study ‘Sports Centre Management’ you do it via a traineeship program and day release. Which in turn gives the 70% not going to uni the same opportunity to get into those sort of jobs as well.

  23. Jim,

    “A graduate of the University of Not Even Bog Standard with a degree in Basket Weaving is today a superior (in the job market) being to a bright 25 yo who for whatever reason didn’t go to uni. The former has the opportunity to get into all manner of white collar jobs, the latter has no chance. And we wonder why there is such a split in society…………”

    I think that is largely the case and driven in no small part by the Civil Service which loves its credentialism.

    However at the back of my mind I’m sure that at least one of the Big 4 accountancy firms and at least one big corporate like P&G announced they were making their graduate schemes open to all. Probably in response to the low grade of graduates with intersectional lesbian dance theory degrees thinking it qualified them to rule the world.

  24. @John77

    I expect all the loans get repaid then. If everyone has a career progression that outstrips the +% above inflation once salaries exceed £25k

  25. “Surely the point of a degree is to raise your career earnings. If it doesn’t do that to the extent that you can repay the entire cost of getting that degree over a career, then it wasn’t worth it”

    Well, aside from the point that personal utility isn’t always reflected in career earnings (and so some people might be happy to sacrifice to do the degree anyway for some non-monetary reward) I don’t disagree with you.

    I was talking purely from the perspective of the fiscal accounts, reflecting the tone of the original post. A proportion of the students are screwing themselves over, sure.

    “RPI + 3% seems to me a pretty favourable rate for an unsecured debt.”

    I’m not sure I fully agree with that. It may not be secured on collateral, but it has three huge advantages. The first is that it is essentially payroll lending, getting a first take of any money earned. Payroll lending is one of the least risky forms of consumer lending for that reason. The second is that it is not erased on bankruptcy, so even if a borrower goes through a tough time there is always an option maintained over future earnings. The third is that the government carries no inflation risk.

    I’m not saying this is a great commercial rate for the government, but comparisons to unsecured consumer lending are just not right despite the superficial resemblance.

    Neither is just looking at the asset side of the equation. The U.K. government can currently borrow incremental 20yr money fixed at 1.7%. Interest on these loans is 5.5% currently. That 3.8pp p.a. spread (and larger if inflation picks up), compounded over the years, means that the government can tolerate quite a lot of non-repayment of the principal amount and still meet their own liabilities, as long as the loan interest is being serviced. A lot of banks would sell their grandmother for an asset-liability spread that is so large.

    It doesn’t mean this is a great money making scheme for the government. But my point stands that from a fiscal point of view full repayment is not the right metric to look at – it doesn’t represent the net present value of these loans to the government at all.

  26. @ Andrew C
    56% of current student intake are female and hence liable to take time off to have children and thereafter work part-time, if at all for many years.
    No, I did *not* say all student loans would be paid off in full – they get written off when some poor guy/gal is run over on a zebra crossing or has a heart attack or whatever. I just said that your model did not reflect reality. .

  27. Here in the US, you cannot discharge student loans in bankruptcy. The Democrats are trying to change that to buy more votes.

    The main courses that are useful from university are STEM and business. The STEM courses would be difficult to do outside of a university because of the cost of equipment to do necessary lab courses. As an engineer, I would not really trust a engineering graduate that had not debugged a circuit or integrated some systems.

    Most of the humanities would benefit from a much more selective system. Unless you are willing to put in the effort for a PHD, there is not much call for those graduates.

  28. As an engineer, I would not really trust a engineering graduate that had not debugged a circuit or integrated some systems.

    Would rather depend on what type of engineer you are.

  29. “A graduate of the University of Not Even Bog Standard with a degree in Basket Weaving is today a superior (in the job market) being to a bright 25 yo who for whatever reason didn’t go to uni. The former has the opportunity to get into all manner of white collar jobs, the latter has no chance. And we wonder why there is such a split in society…………”

    I’m sure this happens with some places, and I know that some consultancies insist on this, but this generally isn’t true. But this myth exists and has been repeated to the point where people think getting a degree in underwater basket weaving opens doors.

    There’s definitely political/box ticking places (and that is large private sector as well as public) where people cover their arse by hiring graduates. But they’re a tiny percentage of even the large employers. And the large sector is smaller than the SME sector. Even companies like Nationwide don’t seem bothered. Experience, or just generally apply for the job…

    I say over and over to people, if you can get into programming at 18 after school, do it. Computer science doesn’t prepare you for working in an office making software. It’s like learning how to make every cocktail and how gin and cognac are produced to run a bar. You can learn to program in a summer.

  30. Mohave Greenie said:
    “The main courses that are useful from university are STEM and business.”

    I thought it was mostly law and medicine that really justified the fees?

    STEM also probably useful (although I’m seeing comments from people in the field that it’s the practical stuff that really matters).

    Business? I thought most university business courses were a waste of time, because the people teaching don’t have useful experience (otherwise they wouldn’t be teaching) (and some of them are worse than useless because it teaches people lots of crap that it takes years of experience to realise isn’t true).

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