Wyre Forest MP Mark Garnier writes for the Standard.
I AM OFTEN contacted by graduates, struggling under student debt.
I did not go to university myself but I am sympathetic to their plight.
Originally, paying for university fees was brought in by the last Labour government, at around £3,500 each year.
But in 2013, the coalition Government increased the fees to £9,000 and started a repayment plan known as ‘Plan 2’.
Under this scheme, students start accruing interest on their loans at a rate of the retail price index plus three per cent.
Then, when they hit the repayment threshold around £27,500 income, they start to pay back the loan at a rate of nine per cent of earnings above the threshold.
It behaves a bit like income tax.
But, this system favours the rich and the underachiever.
If you are rich, you get the fees paid as you go along, so no interest charged.
If you earn a high salary, you pay back the loan quickly, so do not pay much interest.
If your degree is one that our economy does not value, you may never earn the threshold where you start paying back the loan.
But incredibly, if you earn between £27,500 and £66,000, you will only ever pay the interest on the loan.
Interest will compound over your life and the principal will never be paid off.
It’s a silly system.
Choosing, as the benchmark, an aggressive rate of inflation that is not even the one used by the Bank of England is a bizarre choice.
Far better would be the Bankbase rate.
But, the argument goes, this is all about the cost of a university education being covered by students.
The high rate of interest is charged to pay for those who never repay their loans.
Meanwhile universities are creating courses for the sole purpose of having a product they can sell.
And, as I mentioned before, some of these are economically worthless, so their graduates never repay the loan.
Scarier, the Government introduced the concept of charging VAT on education, so they could levy VAT on student fees.
This generation faces a mountain of financial challenges.
No wonder so many are heading off abroad.
