Calum Paton is a writer with Young Voices UK, a trainee solicitor in the City of London, and the managing director of The Speaker, a non-profit political media company
In his upcoming announcement of Labour’s new approach to higher education, Keir Starmer is expected to ‘move on’ from the policy of scrapping tuition fees. As the Labour leader appears happy to cede younger voters in favour of capturing Labour’s heartlands, the time is ripe for Rishi Sunak to make his own proposal to win them over.
Labour has long held a monopoly on youth voters. In 2019, almost 60 per cent of under 25’s supported Jeremy Corbyn. Even under Blair—who first introduced tuition fees—the party averaged around 45 per cent amongst under 25’s. Starmer’s plan to abandon his previous commitment to scrapping fees has faced harsh criticism from Labour’s young base; a bold proposal by Rishi Sunak to scrap interest rates on those fees could outflank Labour and provide a path to staying in Number 10.
The current tuition fee system functions less like a loan and more like a graduate tax. It is by design that most will never pay it back. Instead graduates pay 9 per cent of their monthly income for 30 years after graduating, after which time the ‘loan’ is written off. Graduates spend the bulk of their careers paying off interest, with almost no chance of paying it back like a normal loan.
Tuition fee interest rates run extremely high: typically, 3 per cent above inflation. For almost a decade, this left the rate a little over 4 per cent —not much more than a mortgage—but when inflation ballooned in the back half of 2022, student loan interest rates swiftly exploded.
Before the Government intervened to cap the rates, interest rates on tuition fees were running at around 12 per cent. They now hover just below three-quarters of that level, with a cap of 7.3 per cent from September 2022 and a 6.5 per cent cap running through the winter. This puts the rate of interest comfortably above most forms of consumer lending.
Interest in itself is not a bad idea, particularly when tied to inflation. In theory, this could keep the price of education relatively static (save for inflation) and mean that past graduates are subsidising the education of future graduates—a system quite similar to how pensions work. But as interest rates start to soar, the loans become ever-less likely to be repaid, and the payment system functions more and more like a regressive tax on graduates.
Add to this that much student loan debt in the United Kingdom is now privatised as significant portions of student debt have now been sold to the private sector. In itself that is not a problem, but the high interest rates and the fact that 83 per cent of graduates will never repay the full amount means that in the decades to come, large sums of cash will be scooped up from the government coffers. It is hardly a taxpayer-friendly system.
When you consider that 10 per cent of all students, and 20 per cent at the UK’s elite universities, do not have student loans, it becomes evident that this is a regressive system that punishes the least wealthy graduates. The tenth of students who can pay their tuition up front can be hundreds of pounds better off per month than their debt-holding peers, despite benefitting from the same education.
What’s more, the extortionate interest rates mean indebted graduates will pay tens of thousands more than their original loan amount. When you add the already high taxes to the additional 9 per cent of income that graduates must pay out for 30 years, an average graduate earning over £50,250 per year will pay an effective tax rate of 49 per cent and a marginal tax rate well beyond 50 per cent. This gives wealthier graduates a greater competitive advantage against their fellow graduates when plunging into the fraught first-time buyers’ market.
Tuition fee interest rates should be scrapped to return to a loan system with a realistic prospect of repayment. The payment window should be stretched from 30 years to the retirement age—as is the case for some older student loans—and the monthly payment should be reduced from 9 per cent of monthly income.
This would allow a longer period for the loans to be repaid without piling on tens of thousands in interest payments beyond the loan’s value. Crucially, it would reduce the disadvantage that loan-holding graduates face in earnings and help tackle the extortionate tax burden placed on young professionals.
Now that Keir Starmer has ceded the ground by deciding not to abolish tuition fees, the Conservative Party is uniquely positioned to steal a march on their opponent. Abolishing fees wouldn’t be the answer, nor would it be palatable to older Conservative voters.
But a bold proposal like this and Rishi Sunak could further bolster his credentials as the first serious and effective Conservative Party leader in their thirteen years of government. If he continues to clean up the mess of his predecessors, he might still have a chance of another term.
Calum Paton is a writer with Young Voices UK, a trainee solicitor in the City of London, and the managing director of The Speaker, a non-profit political media company
In his upcoming announcement of Labour’s new approach to higher education, Keir Starmer is expected to ‘move on’ from the policy of scrapping tuition fees. As the Labour leader appears happy to cede younger voters in favour of capturing Labour’s heartlands, the time is ripe for Rishi Sunak to make his own proposal to win them over.
Labour has long held a monopoly on youth voters. In 2019, almost 60 per cent of under 25’s supported Jeremy Corbyn. Even under Blair—who first introduced tuition fees—the party averaged around 45 per cent amongst under 25’s. Starmer’s plan to abandon his previous commitment to scrapping fees has faced harsh criticism from Labour’s young base; a bold proposal by Rishi Sunak to scrap interest rates on those fees could outflank Labour and provide a path to staying in Number 10.
The current tuition fee system functions less like a loan and more like a graduate tax. It is by design that most will never pay it back. Instead graduates pay 9 per cent of their monthly income for 30 years after graduating, after which time the ‘loan’ is written off. Graduates spend the bulk of their careers paying off interest, with almost no chance of paying it back like a normal loan.
Tuition fee interest rates run extremely high: typically, 3 per cent above inflation. For almost a decade, this left the rate a little over 4 per cent —not much more than a mortgage—but when inflation ballooned in the back half of 2022, student loan interest rates swiftly exploded.
Before the Government intervened to cap the rates, interest rates on tuition fees were running at around 12 per cent. They now hover just below three-quarters of that level, with a cap of 7.3 per cent from September 2022 and a 6.5 per cent cap running through the winter. This puts the rate of interest comfortably above most forms of consumer lending.
Interest in itself is not a bad idea, particularly when tied to inflation. In theory, this could keep the price of education relatively static (save for inflation) and mean that past graduates are subsidising the education of future graduates—a system quite similar to how pensions work. But as interest rates start to soar, the loans become ever-less likely to be repaid, and the payment system functions more and more like a regressive tax on graduates.
Add to this that much student loan debt in the United Kingdom is now privatised as significant portions of student debt have now been sold to the private sector. In itself that is not a problem, but the high interest rates and the fact that 83 per cent of graduates will never repay the full amount means that in the decades to come, large sums of cash will be scooped up from the government coffers. It is hardly a taxpayer-friendly system.
When you consider that 10 per cent of all students, and 20 per cent at the UK’s elite universities, do not have student loans, it becomes evident that this is a regressive system that punishes the least wealthy graduates. The tenth of students who can pay their tuition up front can be hundreds of pounds better off per month than their debt-holding peers, despite benefitting from the same education.
What’s more, the extortionate interest rates mean indebted graduates will pay tens of thousands more than their original loan amount. When you add the already high taxes to the additional 9 per cent of income that graduates must pay out for 30 years, an average graduate earning over £50,250 per year will pay an effective tax rate of 49 per cent and a marginal tax rate well beyond 50 per cent. This gives wealthier graduates a greater competitive advantage against their fellow graduates when plunging into the fraught first-time buyers’ market.
Tuition fee interest rates should be scrapped to return to a loan system with a realistic prospect of repayment. The payment window should be stretched from 30 years to the retirement age—as is the case for some older student loans—and the monthly payment should be reduced from 9 per cent of monthly income.
This would allow a longer period for the loans to be repaid without piling on tens of thousands in interest payments beyond the loan’s value. Crucially, it would reduce the disadvantage that loan-holding graduates face in earnings and help tackle the extortionate tax burden placed on young professionals.
Now that Keir Starmer has ceded the ground by deciding not to abolish tuition fees, the Conservative Party is uniquely positioned to steal a march on their opponent. Abolishing fees wouldn’t be the answer, nor would it be palatable to older Conservative voters.
But a bold proposal like this and Rishi Sunak could further bolster his credentials as the first serious and effective Conservative Party leader in their thirteen years of government. If he continues to clean up the mess of his predecessors, he might still have a chance of another term.