Graduates could pay dearly for higher education

Government opinion has been divided by Vince Cable’s plans to replace Income-Contingent Repayment (ICR) of tuition fees with a new graduate tax scheme. The Secretary of State for Business, Innovation and Skills, has proposed that students should pay back their debts depending on how much they go on to earn.

So, a graduate who goes on to become a Big 4 accountant pays back more than a graduate who becomes a social worker, for example. This scheme has been defended by the Lib Dems and the majority of Labour, but has met significant opposition from the Conservatives and universities, who are concerned that the Treasury would get richer while higher education gets poorer.

I believe this redistribution of debt to be flawed for the following reasons:


If it ain’t broke…
The current system is already beneficial for lower-earning graduates. It requires 9% of earnings above £15,000 for a maximum of 25 years following graduation. So, if you are a graduate earning under £15,000 per annum, or if your debt is not paid back after 25 years, it’s written off. So lower-earning graduates make smaller monthly repayments, receive subsidised interest rates, and are more likely to have their debts written off.

Infinite debt
A graduate tax would not incorporate this write-off point, leaving all graduates in infinite debt, with more interest to pay for a longer period of time. Equally, higher-earning graduates earning the same as non-graduates would have to pay higher tax rates, and could even end up paying back more than the cost of their degree. Hardly a great incentive to go to university.

An unfair price to pay
Most graduates take at least five years to achieve their optimum salary (immediate high-pay structure professions notwithstanding). They could have paid off most of their debts in this time, only to be stung with higher taxes when they start making more money. Why should high-earning graduates be penalised with this tax, rather than being allowed to pay back the money they owe at an interest rate that reflects an average graduate salary?

Jump ship
There’s a clear incentive to study abroad (or even work abroad after graduating) to avoid liability of payment.


Graduate tax won’t plug the public spending deficits It won’t account for maintenance loans. It will make universities accountable to the Treasury, breaking the perceived connection between students and universities, and raising questions over the subordination of universities to the state. But more importantly, it won’t benefit graduates.

I eagerly await the next repayment option from the Independent Review of Higher Education Funding and Student Finance…