Tuesday, 23 November 2010

Correction: Debt free aged fifty-three (with underfunded universities the result)

Having found out more details about the proposed system of student loans, some of the conclusions I made in my last post are incorrect. Most importantly, student debts will be written off 30 years after graduation. The majority of students, who graduate in their early twenties, will therefore be paying off debt until their early fifties, rather than into their sixties or seventies as I suggested. This makes things look marginally less bad from the students’ point-of-view. However it is counteracted by the fact that interest is planned to be charged at 3% per annum while a graduate is making re-payments, worse than I had modelled.

From the perspective of Universities, looking for sustainable financing, the fact that a large chunk of student debt will get written-off is not such good news. In my simple financial model a typical graduate still owes c.£15,000 (more than a half of their original loan) when it gets written off at the age of 51.

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