Could the future really see a degree costing £84,000 as the BBC has reported this week?
In a report aired last week, the BBC claims that with the tuition fees for degree students rising to £9,000 per year for most English Universities from 2012, a student who needs to borrow money for these fees plus money to live (averaging £4000 per year), could find that they have to pay back as much as £84,000 over their lifetime.
Can the BBC’s calculations really be correct?
Ok, so our starting figure is £9,000 fees plus £4000 living expenses per year over 3 years meaning a figure borrowed of £39,000. In itself this is quite a large sum of money, but to reach the figures the BBC has reached, we need to look at the government’s new scheme for paying money back and how it works.
Currently when a graduate starts earning over £15,000 they pay back 9% of their income above this level to the SLC. The new system will allow graduates to earn £24,000 before they start paying back any money. At the moment, after 25 years, low earning graduates who haven’t cleared their debt have the remainder of it wiped out. With the new scheme, this won’t happen until 30 years have passed.
Overall what this means is that the amount paid back per year will be lower for most graduates meaning the impact on their every day lives will be less. However, this burden will continue for longer, and because of this the amount of interest incurred on the loan will be greater meaning that the BBC’s figures of up to £84,000 could indeed be correct. For a graduate who gets a great job and starts earning lots of money quickly, the debt will be paid back sooner and less interest will be incurred and therefore they’ll pay less. For graduates who start out on a low income and take a long time to reach the point where they start paying back the money and find themselves reaching the end of the 30 year period with debt still there, they will pay back less because the remainder of the debt will be wiped. For those who fall into the middle of the road category where they do pay the full amount but only just within the 30 year period, the amount that they pay back will be at its highest.
£84,000 or even close to it looks like a massive sum of money in today’s terms. The thing is, over a 30 year period, inflation (the cost of living that rises constantly) nibbles away at the value of money whether it is savings or debts so that £84,000 30 years ago was worth a lot more in terms of buying power compared to today, and in 30 years time it is likely to be worth a good deal less. In fact based on 30 years at 2% increase, around half of a debt that size would have been inflated away! So, in real terms, though the costs of a degree will increase, and graduates will pay back money for longer, they will pay out less per month and therefore will be affected by the debt less generally.
