Why student loans are a confidence trick for the 85%

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The current system of university student funding in England is a confidence trick. It is an attempt to defraud a group of people – poorer students and their families – after having gained their trust by pretending that the system is fair and they will be treated equally. Confidence tricks work by exploiting human traits such as naivety and compassion.

Prospective students are told that it is only fair that they take out a loan to fund their studies at university because otherwise poorer people who do not go to university will, in some way, lose out. They are told that they will on average earn so much more than these people in the future that it is only right that they take out a loan.

A desire for inequality?

These arguments are based on untruths and a desire among some, latent or otherwise, for our future society to be even more unequal. Already the UK has the widest income inequality of any European country other than Lithuania. The Gini coefficient of income inequality, as measured by the OECD, is higher in the UK than it is in Israel, and only just lower than that of Russia. It is highly unequal countries, such as the USA and Chile, that tend to introduce the most costly and unfair student loan systems. It is also the only OECD country to spend more as a proportion of all secondary spending on private schools, than does the UK.

The only way the current student loans system in England can be justified, is if we want the UK to continue being ‘the large country with the widest income inequalities in Europe’ for many decades to come. There is a small minority of English people who do think this is a good idea, but most don’t. For instance, 72% of people in Britain support measures such as maximum salaries for those within the top 1% of earners, 70% support higher top income tax rates, and 62% support a wealth tax on very expensive properties.

We have known that loans are unjust for some time. Even before 2012 when university fees were tripled in size:

‘…debt is unequally distributed. Students who are poor before going to university are more likely to be in debt and to leave university with the largest debts, while better-off students are less likely to have debts and leave with the lowest debts. In 2003, students whose parental annual income was less than £20,480 owed an average of £9,708, and half owed more than £10,392. Students with parental incomes over £30,502 owed just £6,806. So on graduation, the poorest students were 43 per cent more in debt than the richest.

Students studying at university in France, Germany, Italy and Austria pay just a few hundred Euros a year in fees. In Scotland and Scandinavia they pay no fees at all. One reason that has been suggested for high fees in England is that ‘Oxford, Cambridge and Imperial College London – rank in the planet’s top 10’ when it comes to university league tables. Interestingly, English institutions top European university league tables (tables produced in England). Yet, adults in England up to age 24 are at the bottom of ability when compared to their European peers in mathematics, relatively poor at problem solving, and in the bottom half of the distribution for literacy.

By 2011 around 15% of higher education students in England took out no student loan at all. They, or more likely their parents or grandparents, were paying all of their fees up front. For some reason this is a highly opaque part of the system on which almost no statistics are published.

The researchers at the Institute for Fiscal Studies who published the 15% figure in 2016 explained:

There is limited empirical evidence to help us understand which individuals do not take out loans, but one might anticipate that students who do not take out loans are likely to be more socioeconomically advantaged, attend higher status institutions and are more likely to go on to be higher earners’.

The students who pay the least for their university education are those who pay their tuition fees up front. But in reality these students pay nothing at all! This is because in almost every case it will not be the students themselves paying, but their (almost certainly very) affluent parents or grandparents.

Free tuition, but not for all

Roughly half of young people now go to university and so at least 7% of all young people (just under half of 15%) go to university for free. This proportion is very similar to the 7% of children who are privately educated in the UK. In fact, it is likely to be even higher given how much more likely affluent young people are to attend university.  

It is sometimes argued that the current loans system is fair because young people who never manage to earn much in the first thirty years of their working lives will not be asked to pay their loans back. This threshold was recently increased from £21,000 a year to £25,000. But exactly what is fair about work (or caring for others) that pays so little? Especially while those who now go to university for free, so often end up being paid so much at work? We know that it is students from backgrounds very similar to those who do not pay any fees at all, who are most likely to be amongst the highest-paid people in Britain. What we are only just beginning to understand is the fear of future debt, and the realities of living with such debt. Issues that 15% of students never have to worry about. Student loans are now a major part of a growing burden of debt for young adults.

When I went to university in the 1980s it was the best-off students (in fact their families) who paid the most, while the rest of us, the majority from more typical economic backgrounds, who were fully funded. Only the very best-off did not get a grant from their local education authority, instead relying on their wealthier parents. Furthermore, back then their parents also paid higher rates of tax to help fund everyone else. By contrast, a child from a family with average, or even above average, income would not pay a penny to go to university, and would also receive a grant to help them pay the rent and buy food. The system was not perfect, for instance in cases where the child of affluent parents fell out with their family they could be left penniless. But, we have replaced that system with something far more unfair for far more people.

The English student loan system now penalises the poor. Even worse, it attempts to instigate an argument that education is a commodity that you can buy, like a second-hand car. But unlike with cars consumers, who eventually learn about buying cars, with education we are all naïve, we only purchase each stage once, and so the confidence trick will go on until the fees, loans and interest payments are abolished, and the rich are fairly taxed, as they are elsewhere in Europe.

Every student in England needs to know that when they take out their student loan not everyone else is getting a loan. When they are heavily taxed for having continued their education, not everyone is being taxed in the same way. When they pay up to £57,000 for a three-year course, £5,800 in interest before they even finish university, 15% of their peers won’t be paying anything at all.

The repayment system has been fixed to favour the rich by some of their number – they pay nothing back as they have no loans. Their families completely avoid the £29,250 of interest payments foisted on the poorer 85%. However, they forgot one thing. Eventually the victims of confidence tricks get wise. The news that it is a trick spreads. And the con artists either clean up their game, or look for a new trick to carry on taking their unfair share. Given the attention student funding is currently getting, maybe the game is finally up?

5 thoughts on “Why student loans are a confidence trick for the 85%”

  1. Steph says:

    The game is not up, but perhaps I am just cynical. I can’t say I support changes made in recent years to the grant system, but I do recall students with divorced wealthy parents who paid their fees and were still entitled to a maintenance grant.

  2. John Thompson says:

    Danny, you make some good points – but you understate the unfairness. £57000 is not the maximum. Someone on a 4-year course in London with maximum maintenance loan is likely to owe £90,000+. And the repayment terms are subject to the whims of Governments far into the future. Students are signing a blank cheque.

  3. David says:

    I’m sorry, but this article seems to really misunderstand the system. The writing-off of the loans after 30-years and fixed tax contribution of the system make a lot of what you say nonsensical. You should distinguish between poor students and poor graduates. Poor graduates will literally pay nothing for university. You seem to be equating, in many places the ‘fee charge’ with the amount they pay back, which are really only fairly loosely related. On your final point, sure, rich parents can choose to pay for their kids university if they wish, if their kids go on to be highly paid then they’ll save them some money — but if you stopped them doing it they’d just give their kids some share portfolios instead. You’re not going to stop rich parents giving their children money by changing how the student loans system works.

    (Please don’t assume that I agree with the current system, I just despair at the way it’s consistently framed as debt, when it isn’t, and at people misunderstanding who actually pays. There is lots wrong with it, I just don’t think the problems are the ones you’re highlighting.)

  4. Philip Pilkington says:

    It is appropriate to set the student funding question in the context of income inequality and tax systems across the OECD. The argument for tuition fees paid (either by loans, graduate tax or any other methods of marketisation) coincided with the reduction in personal taxation levels and tax as proportion of GDP. Interestingly (or perhaps not) my research with SRHE and the NUS student debt surveys produced over 20+ years showed a consistent level of ‘no debt’ students at around 20% and that seems to continue as a social trend of parental support. Unfortunately, settling the question of fair (sic) student funding cannot be resolved externally to the tax and income inequalities within the UK. Parenthetically, as Kenneth Baker noted in his memoirs that when he was Secretary of State for Education and made the push for expansion in HE (to a mighty 25% participation rate): I left a ticking time bomb in the Treasury and nobody noticed.

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