Effects on students
I asked Mr Hames:
The combined debt of a couple may easily be £120,000. How will a bank lending to buy property regard this, knowing each will pay an extra 9p/£ tax for 30 years, similar to the duration of a mortgage?
The reply from Mr Hames:
Student loans will not impact on credit ratings but a reduction in income is likely to result in a commensurate reduction in the amount a mortgage lender is willing to lend'
Following from this it is possible there will be
1. A knock on effects on a property market where many regard the liquidation of property as a way of funding retirement and long term care for our ageing population.
2. Debt laden and more highly taxed skilled young people being unable to afford housing in the parts of the country where their skills are most needed to increase our national wealth. Hence increased pressure on social housing in these already stressed areas.
I asked Mr Hames:
What will happen to students who at the time they reach £21,000 are unable to pay back the loan due to family or housing commitments? They are likely by this time to be parents in the politicians' favourite 'Hard working' family. Will the state find itself giving greater housing benefits or family credits to supplement these people's eroded incomes? Will their education bondage be considered when they apply for benefits?
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The reply from Mr Hames:
The repayment of the loan will reduce net income and will therefore be taken into consideration when determining access to benefits
As I have already suggested many high earners may find a way out of the loan system. Many of the long-term payers will be lower earners, thus the government may find themselves taking with one hand, and giving with their other, hence the net revenue may be less than they predict.
Many of these loans will never be paid off; some may be substantially larger at the end of their term than at the beginning (see payback section)
I asked Mr Hames at one meeting what protection there was against a future government changing the interest paid, payback rate or loan period. He had not at that time considered this and referred it to Mr David Willets MP who replied as follows:
It is impossible to predict what measures may be introduced by future governments and it may be they decide to increase or reduce the number of years for write off or indeed other areas of the student loan system'
There is no reason to believe this will not happen, recent changes in state pension age, an insurance people had paid into for years, demonstrate how things believed 'set in stone' may be changed by a government in financial distress. I do not see what is to prevent these loans becoming more onerous and blighting these young peoples lives into old age. If enough people are given 'opt out' options democratic pressure may not be enough. All graduates should bear the charge equally, a universal tax, to help create sufficient political pressure to prevent exploitation later. Does anyone know what % of graduates is likely to be subject to the payback charge?
General effect
More and more people will have to put a greater % of their income into funding their pensions. The 9p/£ will go on top of this. With
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tax, loan repayments and pension contributions coming off their salaries, gross graduate salaries will need to be high to bring home a reasonable net salary. Will this be inflationary for chargeable services requiring graduate skills; lawyers, dentists, vets, engineers, but used equally throughout the population? Will this inflationary pressure make the poorest non-degree holders in fact worse off, than if these qualifications were funded through general taxation by putting these skills out of their reach?
Many graduates provide public services, such as teachers, social workers, junior doctors: will this system create an inflationary pressure on public sector salaries?
Student debt in the USA now outstrips any other debt . America is starting to see it as a problem. This week, Center for American Progress Economic Policy Analyst Jordan Eizenga presented an idea to stimulate the economy and create jobs by relieving student debt burdens.
