Simplified – and optimistic – projection for how my son’s salary might change through the years – and how his debt would change until it is written off after 30 years. Note that even with this above average salary, the capital on his student loan is never repaid.

**My eldest son is off to University** this weekend to study Civil Engineering. Overall this is a good thing, but I am worried.

**It will cost my wife and myself a lot of money**: we estimate about £27,000 over four years – but somehow we will afford it. But that is not why am worried.

**My son will acquire a big debt**: we estimate that he will end up with a student loan of over £50,000. But that is not why I am worried either!

**So why am I worried?** I am worried for *you*, dear reader, because the terms of the loan are *bonkers*.

**What’s the deal?**

**The deal is that for each of his years in higher education** my son can borrow £9,000 for fees plus £3,608 for support. So after 4 years he ends up owing £50,440.,

**He begins to repay this when he earns** over £21,000 a year – a figure which is currently intended to track increases in average wages.

**For everything he earns over £21,000** the Inland Revenue will automatically take back 9%.

**So if he earns £26,000 after he graduates** – a good starting salary for a graduate engineer – then he will pay back 9% of £5000 or £450 per year.

**Importantly, if his salary is lower than £21,000 he pays nothing**, and although the debt increases as interest is added, his goods can’t be re-possessed to pay this debt.

**And finally after 30 years** – when my son would be roughly 52 – the debt will be written off.

**This all seems pretty reasonable** – effectively a graduate tax – and not really enough to discourage people from higher education.

**What’s the problem?**

**The problem is that the interest on his £50,440 loan** is (RPI + 3%). So if the Retail Prices Index is 2%, then the interest rate is 5%. And 5% of £50,440 is £2,522.

**So in his first year of earning**, his debt will increase by over £2000. He would only begin to pay off his loan if his starting salary was about £49,000! Only a tiny fraction of graduates will *ever* earn this kind of salary.

**So under the terms of the loan**, I can’t see how the majority of students – who in general earn less than engineers – will ever repay the capital on their ‘loan’.

**And this means that far from being sustainable**, the country – that is you dear reader – is taking on an additional £9 billion per year of unfunded debt which will never be repaid.

**And that means a bailout** at some point in the future and another national debt crisis. Or it means changing the terms of the loans in midstream.

**I have ignored lots of things in these projections. **For example, inflation, and the proposed increase in the £21,000 earnings threshold. However I think they still serve to indicate the magnitude of the problem – students earning realistic salaries after graduation will never re-pay their debt and create a sustainable fund to support higher education.

**Below are graphs summarising a couple more scenarios** – one rather optimistic and one more realistic. Please note that the scales on the graphs are all different.

**You can download the spreadsheet** that generated the graphs here.

Simplified – and realistic – projection for how my son’s salary might change through the years – and how his debt would change until it is written off after 30 years. Note the debt rises to £180,000 after 30 years.

Simplified – and highly optimistic – projection for how my son’s salary might change through the years – and how his debt would change until it is written off after 30 years. Note the debt is just paid off after 30 years.

P.S. Thanks to Dave and Jayne for putting me right on the terms of the loan. The best site available describing the terms is the Money Saving Expert guide.

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Also called a navy shower:

https://en.wikipedia.org/wiki/Navy_shower

Don’t do it where I’m staying at the moment as the “instant” LPG boiler takes a few seconds to light as the water’s turned on allowing a big slug of cold water into the system to surprise you after the warm which was in the pipes. Will make sure to arrange the plumbing on my new house to allow restarting the shower at the right temperature for just this reason.