Wednesday, 15 June 2011

10 things you need to know about tuition fees

Now that UCAS has gone live for applications and almost all of the details of the new tuition fee system have been finalised I thought it would be a good time to produce a simple guide for students, parents or anyone else who wants to know how the whole fees system actually works. Especially since a recent poll found almost 80% of students admitted not understanding how the system works.

 1 - who will it affect?

The changes only affect those who start university in the autumn of 2012. If you're already at university or start this autumn then the new fees won't affect you at all.

2 - Fees don't always equal actual costs

Just because Fees have tripled, it doesn't mean the amount you actually pay has gone up. In fact, for approximately 30% of students the amount you pay for your degree will be less under the new system than under the old one. The amount you pay is determined by how much you earn after university, not by how much you owe so don't assume you'll be paying back as much as you borrow.

3 - Student "debt" is really more like a tax than anything else

Think of your fees and loan as a graduate tax. The amount you pay is effectively an extra 9% on your income tax (on everything you earn above £21k a year) and you pay it either for 30 years after graduating or until it is paid off fully. Whether you have £30k of student debt or £100k of student debt, you're likely to pay exactly the same amount for your degree. (N.B. If you earn above about £40k a year for 30 years then having more debt will affect how much you actually pay, but if you're earning more than 90% of the population, then you probably won't be too put down by having to pay a little extra)

4 - Your "debt" won't affect your ability to get a loan or a mortgage

This "debt" doesn't affect your credit history, banks and other institutions won't be able to know if you have debt unless you tell them and anything unpaid is written off after 30 years. This mean having a student debt won't affect how risky banks think you are when they decide whether to give you a loan/mortgage/overdraft etc. and unlike actual debt your repayments are limited to a few percent of your salary and it'll get written off if you can't pay it off within 30 years.

5 - You will be paying it off for a long time

It should be pointed out that you'll probably spend a good 20-30 years of your life paying your student debt off but as I pointed out, it'll probably only be a few percent of your salary each year so the actual effect will be slightly higher taxes for 30 years, rather than any massive drain on your income. (e.g. If you earn £30,000 a year your repayments would still only be £1,000 a year, not a massive amount by any stretch of the imagination)

6 - It won't take a lot for your degree to be worth it financially

Your degree only has to increase your life earnings by about 5% for it to be economically beneficial to go to university. That's only the difference between earning £20,000 a year and £21,000 a year. That's before you factor in the other benefits of going to university. It's not just a way of making money but an experience and a way to gain new skills and prepare yourself for life whilst doing something you (hopefully) love. But even if you ignore all that, if you think your degree will increase your salary by a mere 5% then you'll make a profit out of going to Uni so please don't let scary figures about student debt deter you from going.

7 - If you're from a poor household you can still afford to go to University

None of the costs are upfront. Even if you're like me and come from a family where financial support from your parents is more or less impossible, you don't have to worry about paying your way through Uni because the government will loan you all the money upfront. There are also generous grants from the government (up to £3250 a year) as well as fee waivers, bursaries, grants and scholarships from some universities. For instance, the University of Oxford offer fee waivers up to £5,500 a year as well as bursaries, grants and scholarships for those from disadvantaged backgrounds. Uni might not be as expensive as you think.

8 - You (probably) won't be allowed to pay it off early

You likely won't be able to repay early. The government haven't made a final decision but it looks like there will be penalties for early repayment. It's unfortunate for some but it's designed so that those with rich parents pay just as much as those from less advantaged backgrounds. It's up to you whether you think it's a good thing or not.

9 - Rules change depending on where in the UK you study

These rules only apply to England. Scotland, Wales and Northern Ireland all have their own systems and their own rules, especially if you are a national of one of those countries. You should find out what the rules are for the countries you're applying to.

10 - Some degrees are worth more than others

The benefits of doing a degree vary massively depending on what you study. The average value of a maths degree is almost £250,000 over a lifetime. The average value of a degree in media studies, about £0 over a lifetime. If you want to study maths or science or engineering or subjects along those lines (computer science is also a good one) then higher fees shouldn't deter you at all because the benefits still massively outweigh even the maximum potential costs.

Don't be put off going to University because of all the scare stories in the media. It is nowhere near as bad as they've portrayed it so far and University is an experience that will stay with you for the rest of your life. Don't feel you have to go to University, but at the same time, don't feel these changes mean you can't. Find out the truth and make your own decision, don't let the media, your parents or anyone else make it for you.

Hopefully I've helped you to understand better the potential risks and benefits of going to University, the rest is up to you.

Monday, 6 June 2011

Is plan A working?

Yesterday an open letter to the Chancellor was sent to the observer. In it a group of fairly prominent economists expressed concerns at George Osbourne's plans to cut the deficit and urged a "plan B" to focus more on jobs and growth. I'm going to have to admit I completely disagree with them that the government needs a "plan B".

They argue that government cuts are hurting growth and slowing down the recovery, which is true. They argue that lower employment and growth lowers government revenues and makes it harder to cut the deficit, which is true. They argue that the Chancellor therefore needs to create a plan B to boost jobs and growth in the economy in order to secure the recovery, which is not true.

What these economists don't seem to get is that every single extra pound we spend has to be borrowed. They keep talking about the benefits of more spending: jobs, growth, revenues but they completely ignore the costs. Namely increasingly government debt still further and the associated costs of debt repayments.

They point to the fact that economy has "flatlined" over the last 6 months, meaning that the economy is no larger than it was half a year ago. This claim is really just opportunism. I could say "the economy has flatlined over the past 4 years" because GDP is exactly where it was in 2007. But this is patently untrue, what happenned was we had growth, then decline and it is only the average which has "flatlined". The same is true here. Over the last 3 months, the economy grew overall. Over the last 9 months, growth. The last 12, growth. The last 15, growth. It is only the last 6 month period which shows a "flatlining" economy so using only that statistic is really nothing more than opportunism.

Last year the economy grew by 1.5%. The OECD, despite downgrading the growth prospects for the UK, still expects the economy to grow by 1.4% this year. In other words, whatever various economists and the Labour party keep saying, the economy is still growing, and growing fairly well.

The government aims to cut the deficit from £150 billion a year to £0 over the next 4 years. The government is cutting billions off of government spending, yet the economy is still growing at 1.5%, it doesn't exactly sound like the economy is "flatlining" does it?

What we must all remember is this. Even if GDP growth were to be 0% over the next 4 years, we would still be getting better off. This is because every year the government cuts spending and brings us closer to sound finances. So, we will have the same amount of GDP, but a lower deficit. The same amount of GDP, but better public finances. The same amount of GDP, but a stronger private sector. The same amount of GDP, but a stronger, more dynamic economy. The same GDP, but an economy less dependent on debt. When Labour (or their supporters in the economic profession) talk about the need to grow, remind them that GDP is not the be all and end all. That there is more to an economy than just spending, and that for all their scaremongering, the economy is actually recovering fairly well, if slower than we might have liked.

The next time someone (be it the labour party, think tanks or anyone else) tells you these cuts are damaging the economy, just remember. The economy IS growing, unemployment IS falling, the deficit IS going down, the economy IS recovering and, so far, plan A IS working. There were always going to be costs to cutting government spending, but growing at only 1.5% rather than 2.5% is hardly too much to pay to put government finances back on a sound footing, to put the economy back on a solid base and to deal with the economic mess bequeathed to the current government.