Am I missing something here? Why do the Liberal Democrats want to impose penalties on students who want to repay their tuition fee loans early? Seems crackers to me. Surely we should be encourging people to come out of debt at the earliest opportunity?
Yes you are issing something here, apart from the m. It's all about "fairness", in that the Lib Dems want to use the student finance system to redistribute from rich to poor graduates. Better-paid graduates could avoid paying more than they borrowed by paying off their debt early. This requires the payment of a penalty fee (which you certainly used to get on some mortgages), which I heard David Willetts struggling to explain the other day: "We can't force people to borrow money."
ReplyDeleteAm I issing something here? The letter m perhaps.
ReplyDelete"Am I missing something here?"
ReplyDeleteA link maybe.
I'm as baffled as you are on this one, Iain. It doesn't make any sense to me.
ReplyDeleteI'm surprised you haven't been more critical of the mess they're making of this university funding policy, actually.
They presumably think that anyone who wants to pay off their loan early must have money to spare, and therefore that the state should grab some of it.
ReplyDeleteRising interest rates will mean poorer graduates, who are unable to pay off their debts as quickly as rich graduates, will end up making significantly larger repayments than the rich graduates.
ReplyDeleteBasically, the idea is to make a system whereby those who can afford to pay their tuition fees without loans, or repay them exceptionally quickly, will be asked to pay back a bit more than those who will be lumbered with interest repayments for the next few decades.
I actually think it's a rather good idea, in a way; the middle-classes being squeezed hard enough already, I think it's only fair that those who can afford to skip the interest should pay a small amount extra.
I see your point, however, which is why I think the "penalty fee" should be restrained so as to prevent it being too punishing
Hope this helps!
It's quite simply a "punish the rich" move in their eyes. Their line seems to be if you wish to pay off your student loan early you are rich. We all know that nowadays to be rich is to be equated with being a baby-eating monster.
ReplyDeleteIt makes for a nice soundbite for them too.
You miss the LibDems' point on 'fairness' Iain: It is 'unfair' for those who can afford to repay early (through Bank of Dad?) as they will pay less interest on the loan than 'poorer' graduates. It really is the politics of envy, where what one does with one's money is being determined by those in control - so I can have 20 large plasma TVs in my home (probably subsidised by the tax-payer) but I can't have a second holiday without it being taxed (pace Livingstone) as that is 'unfair' on those who can't afford two holidays. Arrrrgggghhhhh!
ReplyDeletePaying off early means you're well off, which means that rich people pay less. Not fair.
ReplyDeleteWell that's my guess as to their rationale.
If "daddy pays" they don't have to pay the commercial rate of interest on the loan. To someone with a simplistic view of finance this means that they end up paying less. Of course anyone who is financially literate knows about the concept of present value and that early repayment doesn't actually make any difference. Vince Cable should know that but I doubt that many other LibDems do and our friend Vince does like to play to the gallery.
ReplyDeleteSt Vince's mooted £140 per week increased pension is intended to enable graduates to pay off their university loans.
ReplyDeleteUniversity costs for non-Scottish students) can be minimised by taking an OU degree full-time and living at home.
The LDs want to legislate against well off people. You would think people would be in politics to make us well off.
ReplyDeleteIf you pay your mortgage off early you are limiting the amount of profit the lender banked on making so they impose a penalty.
I don't see why the govt should interfere with any student loan arrangement.
Nutty. People will just modify their behaviour. Either you :-
ReplyDelete1) dont take a student loan at all.
2) dont pay it off early (even if u can)
Some good points above; but it is still puzzling. Since the debt will be written off after 25 years and many or even most students are expected not to repay the whole sum, the analogy to mortgages is false, and it is strange not for the government to accept complete repayment immediately when offered. Of course, most of those in a position to repay the whole sum early will have a high enough income not to have any debt left after 25 years, but what of (e.g.) those who stop working to bring up children?
ReplyDeleteThis is an annoying idea, but I understand their thinking :(
ReplyDeleteForlonehope is almost right
ReplyDeleteThe interest rate on student loans is lower than anyone would have to pay on borrowings from a bank but is higher than the interest a parent gets (after tax) on his/her bank balance. So if there was no levy it would make financial sense for a parent to repay his/her child's student loan, thereby modestly increasing family net income and reducing IHT liabilities. In the context of "sharing the pain" of clearing up Gordon's **** it makes sense for the LibDems to advocate a levy on those able to pay off student loans early.
Is it "fair" - well, if you are Eric Liddell or Seb Coe you can still win a race after being tripped up half-way, but most of us, who do not trip up rivals, would consider it an instance of envy and greed rather than "fairness".
Just Saint Vince up to his old class war politics of spite and envy again.
ReplyDeleteHigher earning graduates will be paying more income tax than their less successful counterparts but this is not enough for the ‘all must win prizes’ pip squeezers of the Lib Dems.
Because Lib Dems, as opposed to Liberals, are out and out socialists, and do not believe any should be allowed to be successful.
ReplyDeleteI read somewhere that 'rich' graduates will pay interest on their government loans at a penal rate (3% over the rate of inflation?), this together with early repayment penalties will lead families to the only rational choice. The choice of funding university fees totally privately (cash / private loans) or not going to university at all.
ReplyDeleteGiven that most students aspire to become 'rich' graduates, we will have the perverse consequence of only well off families (families who have the cash or are able to borrow large sums privately) of sending their offspring to University.
Welcome to the wonderful new 'Liberal Socialist Republic of Un-united Kingdom'.
Oxymoronic LibDims. Say no more.
ReplyDeleteYou're not missing anything. It is a genuinely stupid idea.
ReplyDeleteThe presumption that it's the "well-off" who're most bothered to pay off their debt early really galls me.
ReplyDeleteFor my university years I was in a single-parent household, with three younger siblings, a big mortgage over my mother's head - who was only doing call centre work back then.
I started in 97, so still mannaged to get a grant - it wasn't full loan as nowadays. I managed to get through four years of uni on that, my savings from a Sunday job during my A-Levels, a hardship bursary from my college of about £300 a year, a Student Loan taken in just one of my years, and my bank overdraft.
On finishing uni, I took a below-average paid job in the charity sector. My priority was clearing my overdraft and paying off my Student Loan, so I continued to live pretty frugally till that was done.
These changes will punish the prudent, while promoting a cavalier attitude to personal debt. I think it will also further discourage those who aren't well off, for whom the thought of being lumbered with several thousand pounds of debt is actually a pretty huge thing.
My only experience of the well-off is them sticking their Student Loan money in a high-interest investment, on whom these changes would have no impact.
It strikes me as a dreadful example of politics over principle.