Posted tagged ‘student debt’

Student debt gets political

August 2, 2016

A key issue in the current (and often strange) American presidential election campaign is student debt. There are a number of reasons why it has taken on political significance, but as an issue it was initially raised by the Democratic candidate Bernie Sanders, who in his election programme promised to make university education ‘free and debt free’. The issue has also been taken on board by Hillary Clinton.

The prominence of this issue is underscored by various reports and news items. A blog post published by the Federal Reserve Bank of New York has pointed not just to the scale of student debt in America, but also its socio-economic consequences, increasing the gap between rich and poor and creating ‘negative wealth’ in a number of households. This finds a resonance on this side of the Atlantic, with a British lobby group suggesting that for many graduates the lifetime salary premium secured by a degree is likely to be overpowered by the weight of debt.

All of this tells us that nobody has yet found the silver bullet for higher education funding that is effective in providing necessary resources for institutions while also being socially equitable. Free tuition, notwithstanding the proposals by Sanders, places institutions at financial risk; a loans-financed higher education based on high tuition fees creates unsustainable debt. Sooner or later politicians will need to face up to the fact that means-tested support is the only way out of this. Maybe the US election campaign will help.

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Give us a loan?

October 2, 2012

As the complexity of higher education funding, and the scarcity of available resources to provide funding, has become greater, an increasingly popular method of addressing it has been the idea of student loans. When the Westminster government introduced its recent framework for increased university fees for England, ministers emphasised that a university degree programme was still accessible to students without paying anything up front, and indeed without repaying anything until a reasonable salary threshold has been reached. By providing student loans, the system allows students to embark upon their studies without either them or their parents having to fork out anything at that point.

So is this as good as it sounds? No financial hurdles for students while studying, but financial benefits for universities from fees? Actually, England was not first to try this idea. Australia has been operating a fees/loans system for some time. It was introduced in 1989 as the ‘Higher Education Contribution Scheme’ (HECS), which has more recently been replaced by the ‘Higher Education Loan Programme’ (HELP). This scheme has been used as a model for higher education funding programmes contemplated or introduced elsewhere, including in Ireland. Student loan programmes are also common in the United States.

However, all these schemes are somewhat problematic. In Australia it was estimated in 2010 that outstanding student loans debt was $15.8 billion. In the United States student debt overtook credit card debt around the same time. Furthermore, it has been revealed in America that where graduates begin to re-pay their student loans, nearly 10 per cent default within two years. It is not unlikely that this pattern will be repeated in England, and if it is, it will create a whole new funding issue as the expected resources from loan repayments do not fully materialise.

There is, I believe, a strong case for tuition fees paid by the well off, with financial support for those who cannot afford to pay. There is also a case for state funding of higher education fees, provided the state understands the scale of the funding requirement. There seems to me to be no convincing case for loan schemes. They deter students, and they create unpredictable financial issues. It is time to move away from the whole idea.

How should we view student debt?

November 22, 2011

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.

The problem of student debt

August 4, 2011

As longer term readers of this blog will know, it is (and remains) my view that students who can afford to make a contribution to the cost of their university education should do so, in large part because this will allow the use of public money specifically to support those who need financial help in order to access higher education. I am therefore a supporter of tuition fees for those who can afford them – though I also accept that in Scotland there will be no fees for the foreseeable future (in Ireland the position is now less clear).

However, while I doubt whether public funding should be spent to cover the entire university education of wealthier students, I have significant reservations about the use of student loans to fund degree programmes. While it is true that a university degree  has the effect of increasing the anticipated lifetime salaries of graduates, there is also now growing evidence that the size of average student (or graduate) debts in a number of developed countries is now such that many will struggle to meet repayments, and indeed many may conclude that the financial burdens they are carrying exceed their expectations of higher pay.

Graduate debt statistics bear out this problem. In addition however there are now increasingly bizarre developments that highlight the issue. So for example the recent suggestion by Sue Rabbitt Roff, a senior research fellow at the University of Dundee, that it should be permissible for people to sell a kidney for transplant purposes was justified, inter alia, with the suggestion that this might be a useful way of paying off university loans. Equally alarming is the sudden rise of websites that offer ‘sugar babies’ to ‘sugar daddies’ – i.e. the offer by female students of ‘companionship’ or sex to older men in return for financial support while at university. While the websites in question are American, one of them claims to have over 200 Irish female students registered for these purposes.

As the trend continues to have high tuition fees for students funded by loans, the consequences of this need to be considered carefully. It is not that loans are never appropriate, but rather that there needs to be a much more sophisticated assessment of when a loan is a viable funding method, or when the resulting debts will simply be unmanageable. This also means that access programmes need to be more than token in terms of students numbers. It is time to take the financial circumstances of students much more seriously.

Fees, debts and loans

March 21, 2011

Amidst the international turmoil around higher education funding, one aspect of the situation has started to encroach on public awareness: student (or graduate) debt. In England it has just been revealed that the 20 students with the largest debts owed to the Student Loans Company together owe more than £1 million, with the highest individual debt being £66,150. In the United States, where debts have been a feature for many years but where, in the light of major tuition fee increases recently, they have grown significantly, there is an overall level of graduate debt that exceeds that of credit card debt and now stands nationally at a staggering $900 billion; but it may be that the English authorities should note that even with those sums the average individual debt in the US is lower than what is now expected in England.

Student loans are sometimes presented as an easier option than straight fees, as higher education still remains free at the point of use. It is however arguable that loans have the potential to create a whole new set of problems. The British universities minister, David Willetts, has recently suggested that in reality the new post-Browne English framework is a form of graduate tax. If that is so, then it would be better to structure it that way, thereby removing what may become the major deterrent effect of large debt. Or it might be better to set fees for the wealthier students only, payable on entry to university, while creating better grants and financial supports for those less able to pay.

And for those who believe that a totally free form of higher education is best of all, it nay be important to reflect on the fact that a university system thrown into penury is in the end not a better outcome.