Student Grants And Tuition Fees Could Be Next Major Deficit

Some time ago the keen2learn blog highlighted a concern over the long-term effect of student borrowings and the ability to repay the debt. Taking the USA as the benchmark, where college and university educational fees have been the norm for decades, some startling facts emerge that should be reviewed in the UK.

The Department for Education have released many statistics revealing the apparent increased earning potential of a graduate compared to a non-graduate. But this assumes that the graduate will enter a well-paid full time job within six months of leaving university. Regrettably the recession has introduced a different outcome. In the USA the unemployment rate for new university graduates now stands at 10 per cent compared with 4.2 per cent for college graduates. As the salary premium has also fallen by eight per cent the decision faced by most under graduates is approaching the tipping point whether a degree is worth having.

Student loans in the USA have now surpassed credit card debt. A total of $750billion is now owed by students for their education, with real concern of their ability to repay the debt. Criticism is also emerging the cash was paid out in similar fashion to the sub prime mortgage market with little or no investigation as to the potential of the borrower being able to repay the loan. This has caused considerable anguish with affected students who have a growing inability to pay. Defaulting loans have risen from 7.7 to 8.8 per cent of the total for students who graduated over the last two years. The total default figure for all student loans now stands at 15 per cent.

Taking this situation in the USA into consideration should raise considerable concern at the Department of Education and the Exchequer. Whereas we have to accept there is a significant cost to provide education, and in these restricted days there has to be some financial review, the student loan could be following the same potential disaster course as the USA.  This also ignores the psychological deterrent of tuition fees on lower income families who struggle with debt (even accepting the debt is repaid only when the graduate is earning above the repayment threshold). It also ignores those students who fail their degree yet have to repay the tuition fees without the potential salary enhancement. There is also the growing comparison with those leaving school at 16, who hopefully will find gainful employment who will be free of the albatross of student loans being worn around the neck like Coleridge’s “Ancient mariner”.