Thoughts and analysis on two of ‘The Sunday Times: Business and Money,’ articles: ‘From tech to trucking, firms can’t find the staff,’ by Sam Chambers and ‘The £100k student loan bill’ by Imogen Tew

The article by Imogen Tew explains that the Treasury is currently contemplating a shift in its structuring of student loans. Student loans allow students to pay of their post-secondary education. The benefit of a student loan is to allow talented individuals to gain a high quality education that is an extension of their previous school life. It provides a greater depth to a subject that improves your employability prospects in the future. One government spokesman said that it also ensures that , ‘the cost is fairly distributed between graduates and the taxpayer.’ Once the individual has leveraged this education they can pay off their debts (with interest). Students acquire better job prospects and are able to have the, ‘university experience,’ while the government receives a more skilled workforce in the economy and a regular percentage of graduates’ salary. While this initially seems like a fair trade-off, the nature of student loans in the past few decades has made the relationship more one-sided, and with current considerations, may tip the odds further against students.

The article states that the Treasury wishes to extend the loan term and lower the earnings threshold at which loans are repaid. Currently, students start repaying the loan as soon as they start earning over £27,500 and it is paid across a 30 year term. The typical graduate may pay £46,840 during this term(with the assumption that the graduates initial salary is £24,00 and increases 3% a year for 30 years with an additional pay rise of £5,000 every 5, 10 and 15 years). However, the government is concerned with the amount of debt that may be written off and the amount of students who may repay their loans in full. Current estimates suggest that only 22% of students will repay their student loans entirely. Thus, the Treasury wishes to review the student loan structure.

After 2012, tuition fees were increased from £3,000 to £9,000. Universities could not charge more than this maximum, however, as expected, there was a vast rise in the number of universities charging more expensive university fees.  A 300% increase in tuition fees was a serious financial hampering for students. However, this was not enough to dissuade them from not attending university. There was a fall in the number of students in higher education after 2012 but the numbers have continued to rise up back to previous levels of around 2.5 million students in higher education each year. The Treasury’s current plan, though, may not see the same faith. If the term is extended to 40 years, ten years more than the current term, and the threshold is reduced to £25,000, it is expected that students will pay over £100,000. The combination of the longer term and lower threshold result in such a sharp increase.

The prospect of a £100K bill is alarming for students is alarming. Tuition fees that were once £1,000 a year in the late 1990s have seen large price hikes that may dissuade students from university. All the wonderful benefits of university, as mentioned earlier, begin to lose their value. With the increasing popularity of apprenticeships, students will be forced to seriously consider whether university is truly worth the burden of a daunting loan that may be almost impossible to pay off for most people. But, whilst apprenticeships seem attractive for students, a recent levy by the government that enforces employers to pay 0.5% of their wage bill to fund the training has curbed the interest of employers’ investment into apprenticeships.

So, what does this mean for the UK economy as a whole? Students, it appears are placed in increasingly difficult situations, with a financial burden plastered to them even before they start working. A large amount of potential talent may be lost, simply because there isn’t enough financial support for young people. Chambers’ report explains that during the pandemic, as global supply has been restricted, demand for locally sourced goods and services has dramatically increased. However, there appears to be a large skill gap and the country’s immigration policy following Brexit limits overseas recruiting. Industries, including technology and manufacturing are unable to fill vacancies as they are unable to fill skill gaps. Training employees to a high level takes years of valuable time, resources and expenses – that exemplified by the pandemic – businesses may not have. If the changes of the Treasury go through, these skill gaps may widen. Students are learning similar theory and skills as before this proposal but must pay more to acquire it. Students may sacrifice going to university. It will be a shame if the next generation of workers have missed out on a rewarding educational experience, not because of their merit but rather their financial situation.

On the contrary, Chambers explains that 45% of graduates in 2019 entered jobs where their graduate skill set was not utilised. The prospect of spending a significant amount of money over the course of 3-4 years, only to find that this education did not adequately prepare you for your job only acts as a further justification for students to reconsider their post-secondary choices. Yet, it also allows the government to seriously consider what can be done to address this skill gap. Recently, the government has invested £2.5 billion into a national skill fund. Furthermore, according to gov.uk, since May 2015 there have been over 2 million apprenticeships. Apprenticeships allows young aspiring professionals to gain the necessary skills required to perform on the job, as well as being paid at the same time. Reconsidering their incentives and allowing more freedom to companies(stated earlier) can make apprenticeships an increasingly viable option. Tesco, said that if the government loosened rules on how their funds were spent, over 8000 apprenticeships could be created per year in the retail industry. This can allow people to be specifically trained to address the skills sets within the market.

While it is clear that universities will remain a very appealing prospect for young, ambitious individuals, if the Treasury’s plan goes ahead, students will have to reconsider this option. Not only will students have to look at their personal situation, the government must also look to help students to exit the dilemma of financial burden early on in their careers or provide them with equally rewarding experiences such as apprenticeships in order to not only satisfy their needs but also the needs of the current and future economy.