Lots of graduates will never pay off their loans, which is the point

Graduating into a recession is hard; at least you can not pay your loans until you earn a bit.

The Telegraph reported yesterday that "at least 40 per cent of student loans will never be repaid":

Around four in 10 graduates will have their student loans written because they will never earn enough to pay them off, researchers claim.

At least 40 per cent of the cash borrowed by students will never be repaid - a figure far higher than Government estimates have previously suggested.

Ministers had previously believed that around one third of the total students loan bill would be lost as those students fail to make enough money to pay it back.

However, leading university vice-chancellors, who carried out the study for the Institute for Public Policy Research, suggest that the total would in fact be closer to 40 per cent.

This is the second volley I've seen in what looks like a campaign to justify raising the cost of education without raising the actual tuition fees. The first came earlier this month, as the Guardian reported on moves to lower the level at which students would have to start repaying their loans.

Here's what's happening. Tuition fee loans are paid by the Government to the universities; maintenance loans are paid by the Government to the students. The students then pay the loans back, with interest – currently set at RPI plus 3 per cent – until either they have been paying for thirty years, or they have fully paid off the loan. The payments are 8 per cent of income above £21,000, a threshold which was originally planned to rise with inflation, but now looks likely to stay the same in nominal terms, thus increasing the number of graduates having to pay.

A subset of students will, therefore, not fully pay off the loan. This has always been known; the problem is that the initial calculations incorporated the same level of hopeless economic optimism as all the other Government departments (or, to put a more partisan spin on it, the initial calculations did not take into account the fact that the Government's austerity programme would smother the recovery in its cradle). Which means that, rather than a third of students not expected to pay off their loans in full, it is now four in ten – because fewer graduates are employed, and those which are are earning less.

The IPPR report which sparked the Telegraph's piece suggests that one way to deal with the problem is:

The creation of a new generation of cut-price degree courses priced at £5,000-a-year – significantly less than the current £9,000 maximum – for “stay-at-home” students to cut down on the amount of money being loaned by the Government.

The idea is that of students take these courses, then they could be barred from taking out maintenance loans, cutting the overall amount borrowed substantially. Of course, the university would still have to work out how to save £4000 on the teaching of a "stay-at-home" student.

It is clear that the complete mismanagement of the tuition fee increase by this government has left a black hole in the higher education sector's finances. But every suggestion as to how to manage that so far involves putting the burden on students and graduates – and even then, on only the graduates who started university in 2012 or later, who have already paid three times more that the students who immediately preceded them.

In the end, what's happened is that this generation of graduates is experiencing grave misfortune, with the highest levels of youth unemployment since records begin and a prolonged decline in real wages; that misfortune leads to the expectation that record numbers of them will, in essence, default; and much of the response is based around finding ways to extract more money from them anyway.

IPPR's proposal is better than most, in that it is at least looking for ways to save students money; but it still leaves them picking up the tab for the Government's incompetence.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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An unmatched font of knowledge

Edinburgh’s global reputation as a knowledge economy is rooted in the performance and international outlook of its four universities.

As sociologist-turned US Senator Daniel Patrick Moynihan recognised when asked how to create a world-class city, a strong academic offering is pivotal to any forward-looking, ambitious city. “Build a university,” he said, “and wait 200 years.” He recognised the long-term return such an investment can deliver; how a renowned academic institution can help attract the world. However, in today’s increasingly globalised higher education sector, world-class universities no longer rely on the world coming to come to them – their outlook is increasingly international.

Boasting four world-class universities, Edinburgh not only attracts and retains students from around the world, but also increasingly exports its own distinctively Scottish brand of academic excellence. In fact, 53.9% of the city’s working age population is educated to degree level.

In the most recent QS World University Rankings, the University of Edinburgh was named as the 21st best university in the world, reflecting its reputation for research and teaching. It’s a fact reflected in the latest UK Research Exercise Framework (REF), conducted in 2014, which judged 96% of its academic departments to be producing world-leading research.

Innovation engine

Measured across the UK, annual Gross Value Added (GVA) by University of Edinburgh start-ups contributes more than £164m to the UK economy. In fact, of 262 companies to emerge from the university since the 1960s, 81% remain active today, employing more than 2,700 staff globally. That performance places the University of Edinburgh ahead of institutions such as MIT in terms of the number of start-ups it generates; an innovation hothouse that underlines why one in four graduates remain in Edinburgh and why blue chip brands such as Amazon, IBM and Microsoft all have R&D facilities in the city.

One such spin out making its mark is PureLiFi, founded by Professor Harald Haas to commercialise his groundbreaking research on data transmission using the visible light spectrum. With data transfer speeds 10,000 times faster than radio waves, LiFi not only enables bandwidths of 1 Gigabit/sec but is also far more secure.

Edinburgh’s universities play a pivotal role in the local economy. Through its core operations, knowledge transfer activities and world-class research the University generated £4.9bn in GVA and 44,500 jobs globally, when accounting for international alumni.

With £1.4bn earmarked for estate development over the next 10 years, the University of Edinburgh remains the city’s largest property developer. Its extensive programme of investment includes the soon-to-open Higgs Centre for Innovation. A partnership with the UK Astronomy Technology Centre, the new centre will open next year and will supply business incubation support for potential big data and space technology applications, enabling start-ups to realise the commercial potential of applied research in subjects such as particle physics.

It’s a story of innovation that is mirrored across Edinburgh’s academic landscape. Each university has carved its own areas of academic excellence and research expertise, such as the University of Edinburgh’s renowned School of Informatics, ranked among the world’s elite institutions for Computer Science. 

The future of energy

Research conducted into the economic impact of Heriot-Watt University demonstrated that it generates £278m in annual GVA for the Scottish economy and directly supports more than 6,000 jobs.

Set in 380-acres of picturesque parkland, Heriot-Watt University incorporates the Edinburgh Research Park, the first science park of its kind in the UK and now home to more than 40 companies.

Consistently ranked in the top 25% of UK universities, Heriot-Watt University enjoys an increasingly international reputation underpinned by a strong track record in research. 82% of the institution’s research is considered world-class (REF) – a fact reflected in a record breaking year for the university, attracting £40.6m in research funding in 2015. With an expanding campus in Dubai and last year’s opening of a £35m campus in Malaysia, Heriot-Watt is now among the UK’s top five universities in terms of international presence and numbers of international students.

"In 2015, Heriot-Watt University was ranked 34th overall in the QS ‘Top 50 under 50’ world rankings." 

Its established strengths in industry-related research will be further boosted with the imminent opening of the £20m Lyell Centre. It will become the Scottish headquarters of the British Geological Survey, and research will focus on global issues such as energy supply, environmental impact and climate change. As well as providing laboratory facilities, the new centre will feature a 50,000 litre climate change research aquarium, the UK Natural Environment Research Council Centre for Doctoral Training (CDT) in Oil and Gas, and the Shell Centre for Exploration Geoscience.

International appeal

An increasingly global outlook, supported by a bold international strategy, is helping to drive Edinburgh Napier University’s growth. The university now has more than 4,500 students studying its overseas programmes, through partnerships with institutions in Hong Kong, Singapore, China, Sri Lanka and India.

Edinburgh Napier has been present in Hong Kong for more than 20 years and its impact grows year-on-year. Already the UK’s largest higher education provider in the territory, more than 1,500 students graduated in 2015 alone.

In terms of world-leading research, Edinburgh Napier continues to make its mark, with the REF judging 54% of its research to be either world-class or internationally excellent in 2014. The assessment singled out particular strengths in Earth Systems and Environmental Sciences, where it was rated the top UK modern university for research impact. Taking into account research, knowledge exchange, as well as student and staff spending, Edinburgh Napier University generates in excess of £201.9m GVA and supports 2,897 jobs in the city economy.

On the south-east side of Edinburgh, Queen Margaret University is Scotland’s first university to have an on-campus Business Gateway, highlighting the emphasis placed on business creation and innovation.

QMU moved up 49 places overall in the 2014 REF, taking it to 80th place in The Times’ rankings for research excellence in the UK. The Framework scored 58% of Queen Margaret’s research as either world-leading or internationally excellent, especially in relation to Speech and Language Sciences, where the University is ranked 2nd in the UK.

In terms of its international appeal, one in five of Queen Margaret’s students now comes from outside the EU, and it is also expanding its overseas programme offer, which already sees courses delivered in Greece, India, Nepal, Saudi Arabia and Singapore.

With 820 years of collective academic excellence to export to the world, Edinburgh enjoys a truly privileged position in the evolving story of academic globalisation and the commercialisation of world-class research and innovation. If he were still around today, Senator Moynihan would no doubt agree – a world-class city indeed.

For further information www.investinedinburgh.com