Author Mark Richards

Yesterday saw thousands of students receive their A-level results. Many will be going to their first-choice university: others will be negotiating a path through clearing. Increasingly, though, talented students are looking at alternatives to university, questioning whether it is worth graduating with £50,000 of debt.

Anyone reading the tabloid press yesterday would have instantly known it was A-level results day: pictures of attractive girls leaping in the air as they clutched their results covered the front pages. But contrary to the tabloids’ message, boys overtook girls in the top grades for the first time in over 20 years and – astonishingly – people with only average looks and less-than-perfect teeth also received A-level results…

But enough of the war of the sexes and the battle for column inches. For many students, yesterday threw up a far more fundamental question. Is it really worth going to university?

The numbers

According to UCAS – the universities admissions body – 416,000 university places have so far been confirmed this year, which is 2% (around 8,300 places) down on last year. There appear to be three reasons for this: a demographic dip in the number of 18-year-olds, a reduction in applications from the European Union and – as we have suggested above – the increasing cost of going to university.

The means that many universities still have places available – including universities in the prestigious Russell Group – as the media suggested that university degrees were now a ‘buyers’ market.’

But will there be any buyers?

To be in debt or not to be in debt?’ as Hamlet would have said if he had been a student today. Many students are now asking themselves a simple question. ‘Is it worth going to university and incurring £50,000 of debt when I can start earning now – and still pursue the career of my choice?’ £50,000 of debt – and what for many students will amount to a 30-year tax on earnings over £21,000 – is a very high price to pay for a student union, a university social life and in the chance to live in a dubious student flat…

The student loan scheme


The student loans schemeWe wrote about student loans last month. However, with the A-level results out and theory turning to reality for many students, it is worth recapping the basic details.

For the 2017/18 academic year, student loans cover tuition fees of up to £9,250 a year, and maintenance fees of up to £8,430 for students living away from home, outside London. For students in London, this figure can rise to £11,002.

Interest is charged from the day the first payment is made until the loan is repaid and is added to the sum outstanding every month. While a student is studying, and up to the April after the course finishes interest is charge at RPI plus 3%. For 2016/17 this figure was 4.6%, but with inflation having risen, it will now be 6.1% for 2017/18. From the April after the course finishes the rate of interest depends on salary: RPI where the income is £21,000 or less, rising on a sliding scale to RPI plus 3% for incomes in excess of £41,000. It is important to note that if a student does not provide information that is requested by the Student Loan Company – for example, evidence that they are no longer working – then the ‘penalty rate’ of RPI + 3% is immediately applied.

Student loan repayments are made as soon as a student is earning more than £21,000 a year and then paid at 9% of all income above this figure. So if a student is earning £30,000 they will pay 9% of £9,000 – equivalent to £810 a year or £67 per month.  

If student loans are not repaid then they are eventually written off: the general rule is 30 years from the first April after graduation. So if you graduate in June 2017, your student loan will be written off in April 2048. The Institute for Fiscal Studies is currently estimating that around 75% of student loans will never be repaid in full, effectively making the 9% of earnings charged above £21,000 much more a ‘graduate tax’ than a loan repayment.

Criticism of student loans

Unsurprisingly, student loans have come in for widespread criticism – and not just on political grounds. Many have criticised the fact that students will see their debt increasing, even though they are making all the required repayments. If we take our mythical student above, earning £30,000 a year and repaying £67 a month, if she graduated with £50,000 of debt then she will be £2,000 more in debt at the end of the year.

Surely that cannot be, right? Even if you borrow money from the most notorious backstreet money lender using your kneecaps as security, the outstanding capital goes down if you keep to the agreed repayments.

Nick Timothy, Theresa May’s former chief of staff, has been even more outspoken, calling university fees “a pointless Ponzi scheme” that is “blighting young people’s futures.” He called for radical reform and suggested that the fees were simply perpetuating “the university gravy train” with vice-chancellors earning up to £450,000 a year.

What is a Ponzi scheme?

That is a fairly serious charge from Mr Timothy. But just what is a Ponzi scheme? Essentially it is a fraudulent investment, where the operator generates impressive returns for existing investors by using the money from new investors. The scheme is named after the Italian swindler and con artist Charles Ponzi, who became notorious for using such schemes in the 1920s. In fact, it goes back further than that: similar schemes were described in Dickens’ Martin Chuzzlewit in 1844 – once again proving there is nothing new under the sun. Ultimately, a Ponzi scheme falls apart. Either the operator vanishes with everyone’s money, or he runs out of new investors to pay existing investors.

So will we run out of students?

Could we run out of students, just as Mr Ponzi eventually ran out of new investors? Unsurprisingly, many students are now giving serious thought to ‘modern apprenticeships’ – and with the Government refusing to reduce the interest rate on student loans you can only see those numbers increasing. Many leading firms – especially in the professions – are now introducing ‘modern apprentice’ schemes to run alongside graduate schemes. Accountants KPMG are one such company, with apprentices being on a par with accountancy graduates after six years of training – six years in which they have earned as opposed to accruing debt.

Top firms want to recruit and retain the top talent – and increasingly they are recognising that some very able students are making a conscious decision not to go to university. As we wrote recently, it may well be that the student loans scheme does far more to help the government reach its target for apprenticeships than the apprentice levy ever will.

It is difficult to see how the present student loan scheme is sustainable. Many students will never repay their loans and simply pay extra ‘graduate tax’ for the majority of their working lives. Others will – inevitably – think about moving abroad where they might be out of reach of student loan repayments. But far more are likely to turn their back on university: perhaps next year’s tabloid front pages will show students holding their results in one hand, and an apprenticeship application in the other…