The student loan scam

The government has pulled of a huge scam which screws the young in order to to ensure that their own generation does not have to face higher taxes or cuts in benefits.

The scam works as follows. The government lends money to students to pay their fees and maintenance and then collects payment in the form of increased taxes. Because repayment is only required when earnings rise above a threshold level, and the outstanding loan amount is cancelled after 29 years, there is a perception that the terms of the loan are very favourable. This is not the case. The key fact is that the interest payable on the loan is set at 3% above the retail price index or inflation rate. The current inflation rate is 3.6% so the interest rate would be 6.6%.

The huge cost of these loans can be determined by using the government's own student finance website (www.studentfinance.direct.gov.uk).

Students doing a standard 3 year degree who borrows the whole fee of £9000 pa as well as £3750 pa for living expenses will owe £38,000 when they graduate. If they earn the average graduate starting salary of £25,000 they will end up paying a total of £103,000 before the loan is paid off.

Medical students who take out the full loan for fees and maintenance for their 6 year degree will owe £100,000 when they graduate. If they have the average doctors starting salary of £35,000 they and will eventually pay £255,000.

These are huge sums. There is little chance of escaping payment as they are charged through income tax. Graduates with loans effectively pay a 9% higher income tax rate for most of their working lives.

One wonders how long it will take for graduates to realise that the only way to escape payment is to emigrate? If the system stays in place it could lead to emigration of graduate in huge numbers, doing enormous damage to the UK economy, and leaving the elderly who introduced these charges to protect their own pensions to fend for themselves. Perhaps then they will appreciate that the money is useless when there is no one left to actually do the work. And it will serve the misers right.