Iain Pears on the proposed changes to university funding in Britain:
Another thing to note is the extraordinary nature of the loans system being proposed, which is that students will be charged at 3 per cent plus inflation for a very long period of time once they hit a certain level of income. This is sheer profiteering disguised as fairness. Essentially, the government will be requiring individuals to issue 30-year index-linked bonds on their own balance sheets, rather than do it itself. A few sums shows what this might mean. For the government will raise the money to advance the loans on a flat rate basis. It will, in other words, borrow the money at about 2.5 per cent, and lend it out at 6.1 per cent, more if inflation increases. While it will enjoy the benefit of seeing its real debt eroded by inflation, the student will not be permitted the same escape route. If only half the total number of students take out a loan of Â£7000 every year, then that would amount to a transfer from the stateâ€™s balance sheet to those of individuals which stabilises over 30 years at about Â£110 billion. The government would pay a peak Â£2.75 billion a year in interest for this, and receive peak income of Â£6.75 billion back, as wage inflation will ensure within 12 years that most graduates earn over the Â£41,000 benchmark which triggers the maximum levy, and there seems to be no provision for this to be index-linked.
Even Barclaycard would applaud such audacity, not least because there are measures to guarantee this income stream by imposing financial penalties on anyone who wishes to pay off their debts early â€“ a unique and almost feudal arrangement, where individuals are going to be forced to remain in debt, effectively to provide the government with cash flow, for most of their working lives. I know of no other case of a government requiring its citizens to be in permanent debt. The argument that this is just like a mortgage is specious, as mortgages are not index-linked, there are a wide variety of different time periods available, individuals have a choice of which ones to take, and they are secured on hard assets which have traditionally risen in value over time. None of these conditions apply to student loans.
Even if you think it right for students to carry all or most of the cost of their degrees, you surely have to do extra work to demonstrate why a student should pay a graduate tax on top, in the form of an interest rate set three points higher than inflation. And once graduated, why shouldn’t the student loan recipient be allowed to refinance his or her new debt?