How Should University Education be Funded?

[takno]

However, the degree to which this is any more than a mechanical exercise ('Calculate the standard deviation ....', 'Use an appropriate normal distribution to find an estimate ...', 'Test at the 5% significance...') is debatable. It would really take someone in the field to judge. My gut feel is that it equips candidates to produce stats; whether that is quite so true about questioning stats, I don't know.

One of the depressing things I realised reading scientific papers during Covid was the number of fascinating new ways which had been created to squeeze more meaning out of raw population-level data, and how few of the scientists using those methods understood them. Astonishingly little of the commentary was actually supported by the statistics at all. If scientists with university-level training in this kind of thing can get by without understanding what they are doing (and peer reviewers aren't arguing), then half-teaching the wider population some techniques in post 16 education is more likely to create science fanboys than critically aware citizens. Unquestioning trust of anybody wearing a labcoat is no better than unquestioning trust of politicians

 

[DynamicSpirit]

It depends on how you apply the graduate tax, only on those who take on the fees (which the wealthy can skip anyway by paying upfront under the current system) or on anyone with a degree obtained at a UK university.

You're not seriously suggesting you charge an extra graduate tax to anyone who has a degree from a UK University are you? I think the unfairness of that to anyone who self-funded their degree and therefore did not receive any Government support to get a degree is rather obvious!

 

[The Ham]

Unquestioning trust of anybody wearing a labcoat is no better than unquestioning trust of politicians

Arguably no one should be trusted unquestionably.

If for no other reason people can make mistakes, whilst it would be tedious to show my workings when explaining something. Likewise I would be worried if no one was checking what I was saying.

 

[HSTEd]

I've been in a University environment for a very long time and it's really hard to predict who will thrive and who will not.

This has strengthened my belief that universal access, funded from general taxation, is the best way to go.

Someone who went and got a comparatively poor degree can still be an electrician or whatnot, but someone who never went can never do a job that needs a good one.

It's not that expensive and we risk losing talent otherwise, talent that we cannot afford to lose in the new world of the demographic transition.

 

[The Ham]

You're not seriously suggesting you charge an extra graduate tax to anyone who has a degree from a UK University are you? I think the unfairness of that to anyone who self-funded their degree and therefore did not receive any Government support to get a degree is rather obvious!

Arguably they have recovered government support in getting their degree, unless they have only ever been taught by people who self funded their education.

However the two points are towards the outer edges of options (the loan option could be more extreme in that it could be a debt which is never forgiven, and certainly wouldn't be something which should gain much traction).

There is another option which would mean that people like me without a degree at all would also pay, which would be to set general taxation higher for those earning what is likely to be earned by someone with a degree. (Which for the record I wouldn't have an issue with, even though I don't have a degree).

Part of the benefit from this option would be that those who obtained a degree elsewhere would then be funding UK citizens to be obtain a degree.

Back to your point about fairness of a universal graduate tax; if you luck out and end up with a job after uni which pays £75,000 a year meaning that you repay quite a bit less less than someone who only just clears their debt after 25 years of working, is that a fair system?

You've both benefits from the education, however can you explain how the second person has benefited more than the first given that they've paid more for that benefit?

The universal graduate tax would mean that individual who lucked out would pay back more than the person who otherwise would have only just paid back their loan.

If we are looking at it from a purely individualistic perspective if only having to pay back what we "borrowed" is right, why should those who benefit from a degree be funded by me by my taxes when they don't earn enough to pay back their loan?

(This isn't my view, but I've set the question as a way of making us think that a purely individualistic perspective isn't likely to work out to the benefit of society, such a view is the sort of thinking which allows Americans to question why their taxes should be allowed to be used to treat "undeserving" people, even though it costs them more overall).

 

[Snow1964]

In practice the ‘loans‘ are only fully repaid by about 1 in 7 who get higher paid jobs

The remainder have a tax supplement of 9% on earnings over about £27k for 25-30 years, then any outstanding is wiped out.

So a person earning say £40k pays 9% on £13k (40-27) or about £100 per month

 

[The Ham]

I've been in a University environment for a very long time and it's really hard to predict who will thrive and who will not.

This has strengthened my belief that universal access, funded from general taxation, is the best way to go.

Someone who went and got a comparatively poor degree can still be an electrician or whatnot, but someone who never went can never do a job that needs a good one.

It's not that expensive and we risk losing talent otherwise, talent that we cannot afford to lose in the new world of the demographic transition.

As a well paid engineer with no degree I certainly fit into the second group.

I also tend to agree that general taxation is a better funding model, as it reduces the risk of people who could have done better with a degree failing to achieve their full potential because the perception of a loan puts them off.

Even though there's a good chance that it costs me more than the current system (as I pay no student loan payments, but could effectively be required to do so if my tax increased to cover those who do get a degree).

== Doublepost prevention - post automatically merged: 7 Jan 2023 ==

In practice the ‘loans‘ are only fully repaid by about 1 in 7 who get higher paid jobs

The remainder have a tax supplement of 9% on earnings over about £27k for 25-30 years, then any outstanding is wiped out.

So a person earning say £40k pays 9% on £13k (40-27) or about £100 per month

If we assume 50% of people go to university in any year and 1:7 pay it off, as a tax payer I'm already paying some of the cost of about 40% of the population who are of an age that they would have had a loan if they went to university through paying off their outstanding loan.

Given that there's now likely to be nearly as many having been funded through loans (those aged roughly 21-44) as those not (roughly those aged 45 to 68) in the workforce going forwards this is likely to be a bigger cost to tax payers at some point soon.

In the early years it was always going to be cheaper (getting something back was always going to be cheaper than full funding), however there may come a point where that's no longer the case. In part due to the costs associated with the admin of the loans.

For those with degrees earning £40,000 a year the cost would likely be less than that £100, for me (without a degree) I would have to pay a little more, however I'm already part funding the paying off of the loans through my current taxes.

Others who would end up paying more are those who have benefit from a non loan based degree, those from overseas who have fully funded their own degrees but stay here to work and probably a fair few others.

However with (say) an extra £60/month being put into the economy from those who were otherwise paying £100/month in loan repayments there's a good chance that we'd see some economic growth to mean that the extra amount we directly pay being fairly limited.

 

[Yew]

You're not seriously suggesting you charge an extra graduate tax to anyone who has a degree from a UK University are you? I think the unfairness of that to anyone who self-funded their degree and therefore did not receive any Government support to get a degree is rather obvious!

How many people actually "self fund", as opposed to getting a large sum of money from their wealthy parents?

 

[DynamicSpirit]

How many people actually "self fund", as opposed to getting a large sum of money from their wealthy parents?

What difference does that make as far as the ethics of a graduate tax are concerned? If your parents have given you the money with which to pay for your University fees, then you are still purchasing an education, and paying for it without any significant subsidy from the Government, and there is therefore no justification for the Government to seek to recoup any costs from you via a graduate tax.

 

[Yew]

What difference does that make as far as the ethics of a graduate tax are concerned? If your parents have given you the money with which to pay for your University fees, then you are still purchasing an education, and paying for it without any significant subsidy from the Government, and there is therefore no justification for the Government to seek to recoup any costs from you via a graduate tax.

I don't agree with a graduate tax, graduates already pay more tax on average that the rest of the population. The lifetime average graduate salary is £34000, compared to an average of £24000 for non graduates. Given our progressive taxation systems, graduates are more than paying their way simply on tax receipts - without any regressive special fees applied to them.


However, in our abstract situation I am less concerned about being unfair to somebody if they choose to take a specific path (pay their fees in cash), as they still have the option of doing the only realistic option that the rest of us have.

 

[DynamicSpirit]

I don't agree with a graduate tax, graduates already pay more tax on average that the rest of the population. The lifetime average graduate salary is £34000, compared to an average of £24000 for non graduates. Given our progressive taxation systems, graduates are more than paying their way simply on tax receipts - without any regressive special fees applied to them.

We are in agreement there I'm also opposed to a graduate tax. To my mind, education is a good thing that usually benefits society, and we should be encouraging people to get more of it. I have no problems with expecting people to pay towards the cost of their education (which is what the current loan system somewhat imperfectly does), but I would see it as totally wrong to start expecting people to pay extra tax for earning the same amount just because they have an education (which is what a graduate tax would amount to).

However, in our abstract situation I am less concerned about being unfair to somebody if they choose to take a specific path (pay their fees in cash), as they still have the option of doing the only realistic option that the rest of us have.

It would concern me because that person chose to spend their cash on education (which is good), and thereby chose not to spend their cash on something less good for society. We shouldn't be penalising that decision.

 

[Bletchleyite]

We are in agreement there I'm also opposed to a graduate tax. To my mind, education is a good thing that usually benefits society, and we should be encouraging people to get more of it. I have no problems with expecting people to pay towards the cost of their education (which is what the current loan system somewhat imperfectly does), but I would see it as totally wrong to start expecting people to pay extra tax for earning the same amount just because they have an education (which is what a graduate tax would amount to).

De-facto the current system is a graduate tax, it just has a very esoteric sort of loan based way of working out when you stop paying it. It's not a real loan - you can't default on it, and I don't think you can even settle it in full?

I'd certainly simplify it to a graduate tax (for new students instead of it) if keeping the approach. It not being called a loan would stop it putting people off. N per cent until 25 years after you graduate would do it as a fair, comparable and simple approach.

 

[DynamicSpirit]

De-facto the current system is a graduate tax, it just has a very esoteric sort of loan based way of working out when you stop paying it. It's not a real loan - you can't default on it, and I don't think you can even settle it in full?

I guess this is going to be, arguing about the meanings of words, but I don't see the current system as a tax because it's a fixed total amount: Once you've paid the cost of your tuition (plus interest) then you don't pay it any more. To my mind, that makes it a loan (where it just happens that it's HMRC that has responsibility for getting you to repay the loan, plus there are guarantees of not having to pay if you don't earn enough). Therefore the Government's terminology of calling it a loan is broadly correct.

On the other hand, a genuine graduate tax would carry on forever (or on your suggestion, possibly time limited), as long as you're earning enough, and irrespective of whether you've already fully repaid the cost of your education. The fact that it's not connected with how much you 'borrowed' in the first place is what would make it a tax rather than a loan. (And is what to my mind would make it ethically wrong)

 

[Ediswan]

De-facto the current system is a graduate tax, it just has a very esoteric sort of loan based way of working out when you stop paying it. It's not a real loan - you can't default on it, and I don't think you can even settle it in full?

You can.
https://www.gov.uk/repaying-your-student-loan/make-extra-repayments

You can choose to make extra repayments towards your student loan. These are in addition to the repayments you must make when your income is over the threshold amount for your repayment plan.
You should only make extra repayments if you think you can pay off the full balance before the loan term ends. This is because your loan will be written off at the end of the term.

 

[The Ham]

On the other hand, a genuine graduate tax would carry on forever (or on your suggestion, possibly time limited), as long as you're earning enough, and irrespective of whether you've already fully repaid the cost of your education. The fact that it's not connected with how much you 'borrowed' in the first place is what would make it a tax rather than a loan. (And is what to my mind would make it ethically wrong)

Please justify why it is ethical right for someone who earns >£75,000 a year and pays their loan of quickly pays less than someone who only just pays their loan off at the end of the time time limit of the loan (or or could be someone who doesn't pay of their loan but still pays more)?

Whilst the person would pay higher taxes on their £75,000, this is also true of someone without a degree who also earns that much.

Whilst I don't think that a graduate tax is the correct way (general taxation is probably better, as it's already part funding the system through the writing off of loans), the fact that some could pay back less than someone (who possibly even borrowed less money than they did) should raise the question of if things like this should be so individual in nature.

 

[DynamicSpirit]

Please justify why it is ethical right for someone who earns >£75,000 a year and pays their loan of quickly pays less than someone who only just pays their loan off at the end of the time time limit of the loan (or or could be someone who doesn't pay of their loan but still pays more)?

That's easy to justify. If you pay your loan off more slowly, then you pay more interest. No different from, if you pay your mortgage, or a loan for a new car or something off more quickly, then you pay less interest. (Though I do think the interest rate on student loans has been too high in recent years. Ought to have been reduced to match, maybe the inflation rate. I guess this year that's not an issue though!).

 

[The Ham]

That's easy to justify. If you pay your loan off more slowly, then you pay more interest. No different from, if you pay your mortgage, or a loan for a new car or something off more quickly, then you pay less interest. (Though I do think the interest rate on student loans has been too high in recent years. Ought to have been reduced to match, maybe the inflation rate. I guess this year that's not an issue though!).

The difference compared to any other loan though, is that you don't know what you are earning at the start (and the rate of interest, I'll pick that up later):

Also according to here:

UK 2026 Student Loan Repayment Calculator - Interest & Salary Forecast

Free UK 2026 student loan repayment calculator. Forecast repayments for Plan 1, Plan 2, Plan 4, Plan 5 and postgraduate loans with salary projections, interest breakdowns and comparison tools.

www.studentcalc.co.uk

The level of repaid debt is quite a lot different (this is in today's prices, so any total repayments greater than the loan amount have cleared what they were loaned):

Someone with a debt of £45,000 earning £42,000 would pay back £71,000 and still have about £22,000 "cleared" at the end.

Whilst someone with a debt of £45,000 earning £75,000 would pay back £59,000 and be debt free after 12 years.

Whilst someone earning £39,000 would also pay £59,000.

The above figures are in today's prices and assume someone leaving university in 2021. I have also made no changes to the base assumptions (for example RPI is 3%). They also assume the debt is the value now (in reality there would be a small difference in the amount due at the end of the course to reach this point, however for sake of simplicity I've assumed that neither had had a job until this point).

As it's in today's prices you can see that unless you're earning less than any of the above numbers you'll still be paying back more than you borrowed (i.e. the government is actually profiting from your loan). With the government benefitting from the person earning £75,000 less than the one earning £42,000.

Also RPI plus 3% is quite a high interest rate, this is the same as my mortgage provider's SVR (well technically that's BofE base rate plus 3%, i.e. few want to be on that if they have any option) yet without the risk associated with lending a mortgage (someone defaulting with their house in negative equity).

It's harder to find variable rate loans in any other area, which makes other comparisons harder to make. However likewise there's few loans which last more than 5 years, so arguably other loans aren't that useful as a comparison.

As someone in a rate of pay which is above the average for someone with a degree, I'm happy that I'm not saddled with a student loan to repay.

If I was on £40,000 my take home would be about the same as someone with a degree on £42,000. However the higher my salary guess the bigger that has gets, If I was on £67,500 and still have about the same take home salary as someone with a degree on £75,000. (I've used those rates at they are the rates I've used in the illustration near the start of this post).

Given that not having a degree hasn't slowed my earning potential by much, but I benefit from those who do have degrees (including those who have taught me, medical care, etc.) it's not unreasonable for me (as my rate is pay could allow me to do so) to be subject to a slightly higher rate of taxation.

Someone of an age where they had benefited from a degree but had been provided with a grant, the above numbers show that they are likely to be quite a bit better off than those with a loan earning the same over their career.

As time goes on, there's going to be more pressure to change towards a general taxation route as more and more of those who benefitted from grants retire and so the number of voters such a change would would result in higher costs would reduce (although many would have kids who then benefited from not having higher costs).