Firstly, I am in favour of free university education. This is for fairly standard reasons; graduates earn more and thus pay more tax, they are more likely to give to/volunteer for charity and vote and do all the things “good citizens” do. They pay back far more than they cost in the long term, and have all sorts of positive externalities that aren’t measurable.

But we can’t afford that just now, as we know, so we’re looking at compromises. And I have two problems with the current system that I’d like to see fixed.

Firstly, the explicit debt problem. While currently student debt is payable in the form of a tax, and quite a progressive one with a nice big personal allowance and a low rate of 9% (less than NI,) the thing is that it shows up on your credit rating. The Bank Manager sees it when they decide whether or not to give you a mortgage. This is not good from a liberty point of view: the explicit link to the debt needs to be removed, however the debt is collected.

Secondly, the rich parents problem. Now I see the “Graduate Contribution” (whether it is a fee, an explicit tax or an implicit income-linked tax,) as a charge for the student to pay from the economic gain they (may or may not) garner from the degree. As such it is an obligation on that person, as a result of their personal gain in status in society as a university graduate. At the moment wealthy parents can simply pay the fees in advance, buying their offspring that extra status at no cost to the future graduate themselves. I see this as a form of tax avoidance on the part of those parents for the benefit of the graduate, and the state’s authority should not crumble when challenged by such wealthy libertarians. The children of wealthy parents are already likely to live 15 years longer than the children of poor parents, and do better in school before either child is 6, and so on. Do we really need to give them a legal tax skive in later life as well? This is a serious problem from the point of view of Social Justice and Mobility and all graduates need to be subject to whatever extra “contribution” is to be implemented; their parents shouldn’t be allowed to buy them out of it.

Now I was hopeful as I watched Vince Cable this afternoon that he might have an answer from the Browne report to the second problem. He was talking about making sure that early repayments had an associated cost. However, upon closer inspection it seems that, since he wants to introduce commercial interest rates to the loans, all he wants the parents to do is pay the interest as well. This isn’t going to deter the people I’m talking about, and as such it is pissing in the wind as an answer to the above argument.

Raising the threshold to £21k from £15k will mean everyone pays the loan of more slowly, which may or may not be good, but I don’t see how it will help with the deficit.

Crunching some numbers:
Someone who pays £7k a year in fees for 3 years financed by a student loan will have a debt of £22k when they leave (accounting inflation interest during the course). If they are lucky enough to go into a job with a salary of above £21k upon graduating they will be charged interest at, say, 6% on the loan (3% inflation, 3% commercial,) a yearly addition to the debt of £1320. You will have to be £14,666 above the threshold to even pay the interest on that loan, which means you need to earn £35,666. Whereas if you earn £20,999 you pay only inflation interest, and have no repayment contributions.

Now I don’t know if that is fair or not; it’s tax and there are thresholds and stuff, and it can be judged by various criteria. To be sure, you need to be approaching the top 50% of earners to pay the commercial interest and start getting charged repayment fees, so there’s half an argument that it is nearly “progressive”. But what I do know is that your parents can buy you out of it in advance, and that your bank manager could well deny you a mortgage at 38 because you still haven’t paid your student debts.

If I were an MP I would be voting against the Browne report’s changes, if implemented as proposed by Vince Cable in the house today. I know many Lib Dem MPs are planning to do just that, and I encourage them to mobilise, co-ordinate with Labour (opportunistic as they’re being) and show you can bring down the government on this bill. It won’t be the end of the coalition, but it might just be enough to make Vince think twice about this. At the very least it will help save your seats next election (which will be a bloodbath for the Lib Dems if this passes, not that that should be a reason to change one’s behaviour of course.)