Jiva Technology

Your student loan: is it a debt, is it a tax?

Here’s a thing: the dictionary definition of a loan is simple, “a thing that is borrowed, especially a sum of money that is expected to be paid back with interest”. So far, so straightforward. On that basis, a student loan is money that you borrow to pay for your studies and associated living expenses and then pay back once you enter the world of work. Plus of course the interest, which is currently running at an eye popping 6.1 per cent.

But hand on a minute, why does every self-respecting personal finance commentator and newspapers ranging from the Financial Times to the Guardian suggest that your student loan isn’t actually a loan? Simple, because most people are not expected to pay it back. Current IFS estimates are that 83% of graduates won’t repay. And if 83 in 100 people who take out a loan don’t pay it back, then its no longer a loan in any real sense of the word.

Does any of this matter? Who cares if only a few people pay back the money? Well it does matter and it matters for a few important reasons that no one seems to be talking about. Student debt has already ballooned to over £100bn and sooner or later someone has to pick up the tab. Politicians have engaged in a classic classic fudge where they tell one group of people one thing (its a loan, we’ll get the money back) and another group of people another (don’t worry, you probably won’t have to pay). The money has already been spent on those shiny new campus building and extravagant Vice Chancellor salaries, so what happens when student debt becomes a problem for the Government or taxpayers who don’t go to university realise they’re picking up the tab anyway.

What’s more, why are we telling people to take out debt and then not worry about repaying it? It sounds like the definition of a bad habit to get into. Student debt appears to be yet another topic that we cannot have an honest public debate. This won’t go away if we don’t think about it, it just gets worse. There are only two solutions: most of the debt is picked up by taxpayers or most of the debt is picked up by students. What I fear more than anything is that the rules will change – we’ll start telling students its okay and they won’t have to pay and then switch as the debt mountain becomes too high. That, more than anything, would be the epitome of unfairness.

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