UK Student Loans
Politicians tell us that “It is only fair that those who have benefited from a university education should contribute to its cost” . If you and they believe that then surely those who benefited more, in terms of income, should pay proportionately more. While interest on debt is a horrid way of achieving this, it is a progressive measure.
For all the detail on the effects of accrued interest on student loan debt watch Student Loan Farce (part 2)
If you reduce or remove interest accruing on debt, you reduce revenue from the high income graduate. So you need to take more revenue from the low to mid income graduate, if you want the same revenue to support
University education
This is exactly what Reform promised
in their 2024 election manifesto with
the extension of the loan period to
45 years for new and existing borrowers
To do this you extend the loan term
and lower or freeze thresholds
And this is exactly what the Conservative
Government did with the introduction of
Plan 5 loans to replace Plan 2. Plan 5
loans have a longer 40 year term and
a lower starting threshold than Plan 2.
Did the right wing press and
politicians make any fuss about
this profoundly regressive measure
which penalises the lower
income graduate? Course not !
The Plan 2 interest scheme attempts to make the higher earner pay in fair
proportion to their earnings.
But it creates a “ridge” of unfairness for the top 15-
earning peers
At high (infinite) interest accrual, no-
“pays off their debt”, everyone pays back at 9% of income over threshold for the loan term.
It becomes a proper graduate tax!
And just like income tax, it’s FAIR
-
the more you pay as a proportion of
your total income
Here’s the bombshell
If all graduates paid back at the same rate for the full loan period -
the overall tax rate could be reduced from 9% to around 5%!