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September 21, 2011

It is what it is

There seems to be some talk at the Lib Dem conference about rebranding the new student loan scheme as a graduate tax (see Elizabeth Gibney's piece here). However earnest Simon Highes and Vince Cable sound, this is a wheeze that is doomed to failure for the simple reason that the new scheme is not a graduate tax.

With a graduate tax, it works like income tax. The basic principle is that all graduates earning the same amount pay the same. But under the new scheme from 2012:

* You have to pay even if you don't graduate 

* The amount you pay back depends on where you study

* The amount you pay back depends on what you study

* The amount you pay back depends on when you study  

* The amount you pay back depends on how long you study for

* The amount you pay back depends on how much you already paid back in previous years

* Your payments terminate when your loan is paid off, not when you stop working

* You have to pay even if you leave the country

* Foreign nationals who graduate from an English university and return home also have to pay

* You have the option to pay off your loan early and not pay anything in future years

* If the government goes ahead and sells off the student loan book then, unlike a tax, graduates won't even be repaying the government but a private company, with the government simply acting as an all-powerful debt collector.

The truth about the new scheme is that it is neither what we understand as a tax, nor what we usually understand as a loan, and I wish people would stop trying to force it into one container or the other. It just is what it is.

 

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Comments

You can make a list like that of all the rules around income tax as well. The fact is, it's important to put the system in terms that people will understand.

I see sixth formers on TV talking about having debt "hanging over them" as if the bailiffs are going to come calling, because that's what loan makes people think of. Tax makes them think of a percentage taken off their payslip. Which is more accurate?

@Nick Your argument is not with me...

Yes, it is important to explain the system in ways people can understand. However, you can't do that by pretending the system is something it isn't. That's not explaining, it's deceiving.

The government have created a complicated beast with a variety of advantages and disadvantages, some quite subtle. That makes it difficult to explain. But that was the choice that ministers made. If the system's too complicated and puts students off, that's not my fault but a flaw in the policy.

Also, graduates under the current system have clearly felt that they have debt hanging over them. Nobody should be surprised if doubling or tripling tuition fees makes them feel more heavily weighed down. Again, this is a mundane and predictable consequence of the policy ministers have chosen. If you don't like it, take it up with them.

@William

If only it were that simle!

I think you may need to correct 'depends' to 'may depend' pretty much throughout, because of course the one very tax-like quality of this loan is that you never know how much you may have to pay in future...

@William

My argument's not with them - they're proposing doing exactly what I'd do and calling it a tax, because that's what it most closely resembles. It even aligns very well with the NUS graduate tax proposals. The fact that it has its own rules that don't match income tax is irrelevant, because it's graduate tax not income tax. But the core principles, specifically the payment method and link to income, are broadly the same.

"Calling it what it is" is all well and good... but what is it if not one or the other? If it's not a loan or a tax, what do we call it?

Whilst fees are abolutely necessary to maintain the highest quality of education, a graduate leaving university with 30k worth of debt is going to find that hard to recoup even with a well paid job at the end. It's all swings and roundabouts - whilst paying off debt, people are not spending, and thus not contibuting to the overall tax pot in other ways, which we all have to compensate for in the end.

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