Thursday, May 30, 2019

Augar review

This note considers the Augar review from the perspective of a prospective student, as opposed to a typical university (Wonkhe does not fill me with enthusiasm on that aspect).

Moneysavingexpert gives a fairly helpful list of the main points; see the bold-face subtitles. It goes wrong in one place with “Student loans should be renamed a ‘student contribution system’ … Student loans are a misnomer. So it’s with relief that the Augar report notes our call to change the name…” However, when an expense incurs interest and an obligation on an individual to repay it, there’s no getting away from the fact that it’s a loan (and incurs a debt), and in a minor victory for plain English, the article goes on to use the word loan, and not ‘student contribution system’.

An earlier BBC article Rich students save by paying fees up front notes that under the current regime, 10% of students pay tuition fees upfront (or at least, their parents do). I agree with the criticism of the current regime, as quoted as in the article. When I first read that Augar proposes the fees to be reduced, but you’re on the hook for debt repayment for an additional 10 years (as noted in the moneysavingexpert article: “The loan will wipe after 40, not 30, years – substantially increasing the total repayment for many”) it looked to me like that added up to an even stronger incentive to pay upfront. But wait... there’s also a proposed cap of loan plus 20% (adjusted for inflation) that you have to repay, that makes the set-up more benign. It means that with a partial repayment, you’re chipping away at something that cannot grow without limit. That mitigates a deeply disagreeable feature of the present system, namely the uncertainty and lack of control on how much someone will repay.

My guess: affluent parents will continue to pay the fees upfront, even if the cost to the family for not doing so is at most an additional 20%. It’s basically an attractive mechanism for bequeathing money. There’s also the issue of how such a bequest changes the behaviour the student after they graduate (an aspect of up-front payment that has not received much attention) — arguably if a graduate doesn’t face a tax bill when his income exceeds some amount, he’s more likely to pursue a well-paid job.

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