How should we view student debt?

One of the growing concerns across the developed world is that student debt will increasingly deter young people from entering higher education. In the United States the level of graduate debt is now over $900 billion, a sum considerably larger than American credit card debt. In England individual student debt in the more extreme cases has risen above £60,000.

So is this a major problem in the quest to widen participation in higher education? Not so, according to the English Universities Minister David Willetts in an interview in the Guardian newspaper:

‘We’re trapped in this language of debt. It’s not like leaving university with £25,000 worth of debt on your credit card or anything. If someone said your child was leaving university with £25,000 on a credit card, you’d be quite rightly horrified. If someone said they’re leaving university and during their working lives they’re going to pay half a million pounds of income tax, you’d be completely relaxed. And our graduate repayment scheme is closer to – it’s not exactly the same – but it’s closer to the income-tax end of the scale than the credit-card end of the scale. If their earnings ever fall below £21,000, at that point any repayment stops. It’s 9% of earnings only above £21,000. If you’re earning £25,000, that’s £30 a month. So it is a graduate repayment scheme that has many of the features of income tax. It’s not like some debt around their necks.’

The Minister’s argument is not on the face of it absurd. In fact, if the government had decided to generate the income for universities through a graduate tax, or rather if it had labelled the same scheme differently, the effect might have been different. But it didn’t, and fees will be funded by loans, which in turn produce debt. It is still too early to gauge exactly what impact this is having, but the first visible effect has been a significant reduction in the number of student applicants.

The evidence from the United States, Australia and Britain all points to a similar conclusion: that student loans have unintended consequences and present both a disincentive to study and financial uncertainties attached to repayments. In this setting, it would be wise for countries contemplating loan schemes – like Ireland – to think again. It is one thing to ask those who can afford to do so to pay a tuition fee; it is another to suggest to those who cannot afford it that a loan may be an acceptable form of support. It almost certainly isn’t.

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10 Comments on “How should we view student debt?”


  1. In relation to Australian student debt, University World News reported in October that “the total amount owed by current students and those who have graduated over the years now exceeds AUS$15 billion (US$16 billion) and an estimated AUS$4 billion of that may never be repaid because graduates die, leave to live in another country or never reach the income threshold when they have to start repaying their debt.” This is a country with a very small population, and so an even smaller graduate population: that’s a lot of debt. And the migration factor might be particularly relevant to other small economies.

    So looking at this from the perspective of Treasury, it’s not just students and their families “trapped in the language of debt”. Redefining it as a tax, or a tithe paid in wriggling eels for that matter, doesn’t solve the basic problem here: for too many graduates, the career payoff for acquiring the debt in the first place isn’t proving sufficient to enable the debt to be repaid.

    • Mary Says:

      My partner is Irish and keeps referring to this as well: won’t the graduates all just move abroad? I think in the UK this is actually fairly unlikely: British people just don’t have that culture of mobility, unlike Irish people and Australians. The other things are obviously factors, however.

  2. Peter Lydon Says:

    I was involved with BITE for several years – which helped students attend DCU – and one of the things we found interesting was that lack of money was not the main reason students in disadvantaged areas did not go to university. Rather it was whether there was peer and family support and encouragement. But I agree with Ferdinand’s proposition in the last statement. It seems that there is a trade off between what a loan might look like and the perceived or expected return on that. For some, the mere notion that they will leave college with £25,000 owing – even if it breaks down to £30 a month – seems a lot when it isn’t necessarily guaranteed that one will earn more as a graduate over one’s lifetime. So I think a middle ground view is necessary so that we don’t conclude that student loans are alright then. They are part investment, part debt and part a rationing/sifting mechanism.

    • Vincent Says:

      I’ve been looking at the pay for teachers in the UK. Forgive me but WTF.
      Where and on what do they think these people will bring up a family. I had more income twenty years ago from landscaping and even then couldn’t live on the pay. And now teachers will be expected to repay Uni fees; madness, utter madness.

    • kevin denny Says:

      Peter, your experience is precisely in line with most research: it is not credit constraints that matter but more long run factors, like peer and family support and also educational attainment (if you don’t get the points its very hard to get in).
      The contingency built into the British system (& Australian, I think) means that the uncertainty is not borne by the graduate: if you can’t afford to pay then you won’t have to. But that may not be the perception. Debt, rather like negative equity, seems to have a high psychological cost.
      The returns to a degree over the lifetime are high in general though and will be a multiple of the costs.

  3. Alan Carr Says:

    This conversation has to be understood in the national context in terms of our recent wealth destruction. Individuals and families who value education and are willing to invest in it may be in a position where they dont have the ability to invest in it.
    If this point has any validity, then it will be valid for decades for a significant portion of the population?

  4. Katja Says:

    Hello, just wanted to point out An article in the New Yorker. It looks at the student debt situation from a different position, more in regards to economic development: http://www.newyorker.com/talk/financial/2011/11/21/111121ta_talk_surowiecki


  5. The psychological effects of debts on students’ performances remain an issue that must be addressed. Heavy burden of debts could be a source of distraction to students; this may impact negatively on their performances.

  6. Mary Says:

    The bit that is particularly mind-boggling is where students aren’t supposed to perceive debt as debt, because that’ll deter the poorer ones, but they are supposed to prefer the cheaper options and create a marketplace. How on earth is that supposed to work?


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