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News, Student Debt

“Rich ‘will pay less’ for university as they face lower interest bills”

The rich will end up paying less than the middle classes for tuition fees because they will avoid interest payments, a new report warned today.

The investigation, by financial consultancy Grant Thornton, claims the “richest tiers” of society will become “even better off” because they will be able to settle their debts sooner and pay less interest than those on more modest incomes.

The report says a typical corporate lawyer (see box) is likely to pay £30,000 less than a civil servant despite earning more than £1 million more by the age of 50. The report says that the “squeezed middle” class will suffer “further compression”.

It suggests that the fees will make it more difficult for young people to enter the housing market because many will still have outstanding debts when they want to buy a property, reducing the amount they can pay for a mortgage. It also warns that the deterrent effect of the increased fees is likely to be greatest among those from families whose parents did not go to university – one of the key groups from which ministers are seeking to boost recruitment.

The findings will be seized upon by critics of the Government’s decision to raise the cap on tuition fees from the current figure of £3,375 a year to a new annual limit of £9,000 from next autumn.

Grant Thornton’s report says that when living expenses are added, a student should “reasonably expect” to face “an accumulated debt of around £40,000” by the end of their degree – a “daunting prospect for any 21-year-old”, particularly those from lower-income families.

It highlights the “fear of debt, as well as the debt itself” as a potential disincentive for those contemplating university study. The report also highlights the differing impact of the new fee system, under which interest will be charged over a maximum 30-year period before outstanding debts are written off, on those from different income groups.

Graduates earning less than £21,000 a year will not have to make repayments or incur interest until their salaries rise, but interest charges for others will be higher than at present.

Ministers insist that the system will lead to lower monthly repayments than currently and reject claims that the reform will deter people from university study.

£30k difference

The report cites two examples:

Corporate lawyer Leo
Career earnings: £3.2 million
Student debt: £40,000
Age repaid: 38
Interest accrued by age 38: £28,000
TOTAL DEBT: £68,000

Civil servant Tom
Career earnings: £2.1 million
Student debt: £40,000
Age repaid: 50
Interest accrued by age 50: £58,000
TOTAL DEBT: £98,000

Original Article



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