Assumptions
1) living costs will be £6,000 for a student per year
2) CPI will be 2%, wage inflation will be 3%, RPI will be 4% (interest rate on the loan)
3) This is for a graduate taking a 3-year course
4) Every course will charge the maximum £9,000 a year.
ALL of the changes
1) Tuition fees will now be between £6,000 and £9,000 a year. Up from £3,000 a year previously.
2) The threshold for repayments is now £21,000. £6,000 more than it was previously.
3) The threshold will rise with inflation, before it did not.
4) The highest earners will now pay an extra [up to] 3% interest on their debts.
5) ALL debts are written off after 30 years, 5 years more than previously.
6) There will be fee waivers of up to £18,000 for the poorest graduates but this will not be included in the calculations here to avoid complication.
7) (as yet uncomfirmed) you will not be able to pay your fees upfront, you will have to take out a loan and there will be penalties for early repayment.
As you can see, a fair bit more than what you would realise if you only read what the newspapers told you.
The old system
How it works
Under the old system: You would graduate with about £27,000 of debt. You would pay 4% (RPI) interest on that debt. After 25 years any debt left would be written off. You would pay 9% of your income above £15,000 in repayments. The threshold would slowly be eaten away by inflation.
So, if you earnt say £15,000 after graduating, then in the first year you would pay nothing.
In the second year your salary would have gone up by 3% to £15,450 so you would pay £450*9% = £41.
In today's prices that £41 would be equal to £41/1.02 (inflation) = £40.
In the third year your salary would be £15,000*1.03^2 so your repayments would be (£15,000*1.03^2 -£15,000) *0.09 and in today's money it would be worth that amount, divided by 1.02^2.
Therefore, the total amount you would pay before the debt was written off (in today's money, if you were earning £15,000 a year) is:
∑ ((£15,000*1.03^K-£15,000)*0.09/1.02^K) from K=0 to K=24
which is £6,866
for someone earning £21,000 a year (the current median salary) it is:
∑ ((£21,000*1.03^K-£21,000)*0.09/1.02^K) from K=0 to K=24
which is £20,366
So what would I have actually paid?
So what would I have actually paid?
According to the ONS, 50% of the population earn less than £21,000 (£25,000 for only full-time employees)
only 25% earn more than £32,000 a year
and only 10% earn more than £45,000 a year.
If we take these 3 salaries and plug them into our repayments equation we get the following:
earning £21,000 after university: £20,366 (significantly less than the headline £27,000 of "debt")
earning £32,000 after university: £45,116 (an awful lot more than the headline £27,000 of "debt")
earning £45,000 after university: £31,073 (an awful lot less than the guy earning only £32,000 a year)
The guy on £45,000 pays less because their debt is all paid off after only 11 years. As we can see, the old system resulted in quite expensive degrees for anyone earning above the average salary and also meant that the very well off (those earning £40,000+) actually paid less for their degrees than someone earning only £30,000 a year. I don't think anyone would say that was fair.
The new system
How it works
However, under the new fees system with all the changes outlined above, you would come out of university with £40,000 of "debt", it would be charged inflation of 4% (RPI) plus up to 3% more for higher earners (so the guy on £45,000 a year would pay 7% interest). You would get any debt written off after 30 years and repayments would be 9% above a higher threshold of £21,000 which would be uprated with inflation.
So, if you earnt £21,000 a yar after leaving university. You would pay £0 in the first year
In the second year your salary would have gone up by 3% to £21,630 so you would pay £630*9% = £57.
In today's prices that £57 would be equal to £38/1.02 (inflation) = £56.
In the third year your salary would be £21,000*1.03^2 so your repayments would be (£21,000*1.03^2 -£21,000) *0.09 and in today's money it would be worth that amount, divided by 1.02^2.
Therefore, the total amount you would pay before the debt was written off (in today's money, if you were earning £21,000 a year) is:
∑ ((£21,000*1.03^K-£21,000)*0.09/1.02^K) from K=0 to K=29
which is £13,524
So what will I actually pay now that fees have gone up?
So what will I actually pay now that fees have gone up?
Therefore, for a graduate (with £40,000 of "debt" remember):
earning £21,000 a year after university: £13,524 (a hell of a lot less than the £40,000 of "debt")
earning £32,000 a year after university: £43,224 (a bit more than the "debt" but still less than the £45,000 they would have paid under the old system with only £27,000 of "debt")
earning £45,000 a year after university: £51,840 (at that salary the student debt is paid off after 24 years rather than being written off after 30)
Now we come to compare the previous system with the new one.
Previous Govt. Changes
earning more than 50% of the population: £20,400 £13,500
earning more than 75% of the population: £45,100 £43,224
earning more than 90% of the population: £31,100 £51,800
What we can see here is that you will actually pay LESS for your degree if you earn the same as 80% of the population does. You will ONLY pay more for your degree under the new system if you're in the top 20% of earners. Now, you might still think this is unfair however, as someone who's going to be under the new system, I actually feel better knowing that if I don't quite manage to earn £45,000 a year after university then I will actually pay less for my degree; and to be honest, if I were earning more than £45,000 a year I wouldn't be complaining.
Moreover, when you realise that £18,000 of that debt (from living costs) you would have had to pay whether you were in university or out there earning a living, the "payment" for your degree is actually those figures minus £18,000 which gives us these final tables:
Cost of YOUR degree
Previous Govt. Changes
earning more than 50% of the population: £2,400 £-4,500
earning more than 75% of the population: £27,100 £25,224
earning more than 90% of the population: £13,100 £33,800
In other words, the maximum amount your degree could possibly cost you is about £35,000 and that's the absolute maximum, and that's over your entire lifetime, that's like what? 2 cars? not really that much when you think about it. Moreover, when you consider that even if you do a degree and it's useless and you're stuck on the average wage for the rest of your life, you will have actually made a profit out of going to University. If you come from a poor background and get the fee waivers worth £18,000 then the profit you could make out of a student loan could conceivably exceed £20,000 even if you have a worthless degree. Therefore, even if your degree is "worthless" in the eyes of employers, you're still not going to be worse off financially for going to University so if like me you're from a pretty poor background, please don't be scared of going to Uni. It's your chance to have a better life and don't let the media scare you into not seizing it.
What you should take away form this is three things.
1) Do not let the media dictate what you think. Newspapers are not there to inform you, they're there to sell themselves, by all means read newspapers, watch news channels, but always ALWAYS do your own research, question the statistics, find out for yourself what the truth is because they will only tell you the bits of the truth they want you to hear. As a general guide, have a look round the think tanks, they do a lot of this kind of thing and will probably be a lot more informative than any newspaper is going to be.
2) Don't be put off going to university. Your degree is only going to have to increase your salary by 5% and it will be worth more than it cost you. Moreover, University is far more valuable than just as a way of earning more money, it's a once in a lifetime experience which you will never have the opportunity to have again. Don't be put off going to university because you're scared about the "lifetime of debt" you keep hearing about. Now that you know the true cost of university (effectively only 3-5% extra income tax for 30 years) you can make an informed decision about if you think it's worth it. If you're worried about the value of your degree, then I would suggest you do a STEM subject (Science, Technology, Engineering, Maths) because those jobs really are worth a lot of money.
3) You should keep up to date with my blog because I will give you my point of view but I'll also give you the information to make up your own mind. Oh yeah, and don't blindly trust the media (did I mention that already?)
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