Friday, June 15, 2007

Student Loans

Following a very interesting discussion last night at the pub on the issue of student loans, I felt the need to do some numerical research. My first step was to work out what is currently being paid.



For the next academic year, the government gives £3,244 to the parents from a home that has an income of less than £16,340. Of that amount £1127 is a loan, the rest is a grant. From that income there is a sliding scale to £34,000, where nothing extra is given.



I therefore assume that the government has picked the figure of £3,244 as the amount of money that needs to be given to a student so they can afford university (AMM). In a fair society all students should get that amount of money.



The government assumes that parents earning less that £16,340 cannot afford to give any of that and parents earning £34,000 or more can pay it all. Principally it’s quite a reasonable stance in my opinion. However, I disagree with the numbers.



My initial belief is that there is a problem with the simplicity (if you can call it that!) of the current system meaning a group of people in the middle are paying out relatively more for university. So I did some Maths.



I calculated the percentage of the income it is expected parents should be providing. The amount the parents should be giving was chosen by working out the difference between the full subsidy and what the child actually gets. The result gave a graph like this:







As predicted, there is a section of people in the middle who are expected to pay up to 10% of their income to support their child at university. On average, of the parents who pay anything, the AMM is 6% of the income. I believe that it’s unfair that for some people it’s almost double that.



So what’s the solution? And won’t it be even more complicated or expensive?



The solution I believe will level the playing field will be no more complicated and only very slightly more expensive.



Currently the loan section of the AMM is between £1,127 and £0 for households earning up to £34,000. Households earning less than £23,085 get the full amount, and those in between are on a sliding scale.



If the criteria were altered for this section alone, increased fairness can be achieved. I would propose households earning up to £35,500 receive the full £1,127. There is then a sliding scale up to £52,500, above that nothing is given. The result is this graph:







The new system dramatically reduces the middle group inequity. It’s not perfect but I’m only using rough numbers and only altering one aspect of the system.



The system would require some extra admin work as more students would need means testing. As the extra money given would be a loan, rather than a grant, the government would not lose any money (unless they charge the wrong interest).



If you have spotted a fault, please let me know.



Coming next: Extra Children and The New Loans System.



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