Pyramid Comment

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Tuesday, April 26, 2011

University Guide: Complete And Independent

The Complete University Guide 

 Independent, Trusted

This requires very careful reading and interpretation
and the upbeat ‘independence’ demands CAUTION

What does ‘Independent actually mean
and who are the ‘we’ referred to?

  • Fees charged will be paid directly to the University and applicants will be able (‘forced) to take out a Tuition Fee Loan to cover the costs
  • No student will pay up front for their tuition since a ‘forced  loan will be made on the student’s behalf. The loan is a condition of entry and effectively mandatory - DA. Nothing up front, but the debt is amassing in the shadows and following up behindRPI (higher) and the CPI: 5.3% and 4.0% respectively and defines the alleged 'interest-free' loan. (An odious description -  DA.) Paying back the loan will start only after they have graduated and only then if they are earning over £21,000 and compares with a current (2011 - 2012) repayment threshold of £15,000 for graduates leaving Universities
This sounds as though the student is benefiting from the increase, but like Credit Card Debt, the less that is paid off the more the accrued interest over the period of the loan. Can the student pay off more than the required minimum? Such an option isn’t mentioned, but the condition:

  • Mechanisms will be in place to prevent high earning graduates (and presumably those from wealthy backgrounds) to unfairly ‘buy themselves out of the repayment system. Payment of interest for the greatest time is forced.
Applicants going to Universities in 2012 will graduate in 2015 at the earliest and it is only afterwards (in April 2016) that those with a job earning more than £21,000 will begin to repay the minimum (3-year) loan:

year-1 + amortised interest and
year-2 + amortised interest and
year-3 + amortised interest and

That's years 1 + 2 + 3 and all the amortised interest with absolutely nothing paid off the growing debt.

  • Monthly payments will be lower than those operating under the current system, so they will have to repay over a longer period of their working lives. The interest yield will be significantly more.
  • Graduates earning more than £21,000 will pay 9% of their income every year for up to the next 30 years. This is payment towards the loan and (generously - DA) any outstanding repayments will be written off after 30 years.
£21,500 - £21,000 = £500 x 9% -> £45/year
  • £3.75/month
£25,500 - £21,000 = £4500 x 9% -> £405/year
  • £33.75/month
£30,500 - £21,000 = £9,500 x 9% -> £855/year
  • £71.25/month
£40,500 - £21,000 = £19,500 x 9% -> £1,755/year
  • £146.25/month

This does not consider the amortised interest

After 1-year, the debt will be minimally £27,000 - £45 = £26,955. But, assuming an RPI at 3% (that will almost certainly increase and is the reason for linking to a variable and not fixing a rate - DA), the new balance after this first year will have grown to £26,955 + £808.65 = £27,763.65. After having paid just the minimum requirement of £45 over the entire year:

an ‘essentially free-interest’* loan
has increased by almost £800

Any organisation that describes as an 'interest-free loan' one that clearly is not, must be examined very carefully.

Earning £21,500/year or £3.75/month (£45/year) this will take:

£27,000/£45 = 600 years

Earning £25,500/year or £33.75/month (£405/year) this will take:

£27,000/£405 = 66.7 years

Earning £30,500/year or £71.25/month (£855/year) this will take:

£27,000/£855 = 31.6 years

Earning £40,500/year or £146.25/month (£1755/year) this will STILL take 

£27,000/£1,755 = 15.4 years

That's 185 months paying £146.25/month. For anybody to walk into their 1st job at that sort of salary is unlikely, even in the banking industry. The ridiculously high banker bonuses are NOT the norm in general banking. For many that will most likely be an end-of-career high. All of this is full of totally unrealistic dangerous hype.

If earning up to around £30,000/year, the debt will still remain unsettled even after 30 years. The amortised interest will see to that. Even today (2011), sucand h salaries are career highs. Few graduates will walk straight into a career job paying that salary. After a few years this is theoreticaly achievable, but the other financial commitments will have increased: mortgage, car, children (and financing their education - DA)...

An interest-only mortgage is popular in the UK by enabling the acquisition of a loan (at minimum repayment cost) to 'buy' a property. The appreciation of the property value at least offers the potential of something once the capital is eventually paid. Even though £0.00 is paid off (interest-only) from the capital borrowed, the rise of the asset value theoretically enables the capital (years later) to also be paid. The student loan is essentially an interest-only loan, but has no such growth potential other than growing the debt liability.

With a degree and without a job, the debt would take over 600 years to pay off.

But the debt is cancelled after 30 years (Wow! - DA)

  • This clearly chains the lower paid to their debt for longer and the interest yield is all the greater. The over-privileged elite will thrive at the expense of the under-privileged (those that the government claims to want to ‘help’). The evidence is one acting as a true parasite: it sucks in the under-privileged to feed off and so pay for the continued rise of their elitist class.
  • It's easy to confuse wealth with 'class'. The majority of people (April 2010 - still a Labour government) may imagine themselves to be 'middle-class', but that's... illusion. Working-class or privileged: that's it basically. Just the two types. The working-classes... work. Everybody else that is monied and does not need to work is... privileged. Influential by position and not necessarily with ability.
An ounce of image is worth a pound of ability

This can be interpreted as encouraging accepting low pay to keep the annual salary below £21,000 (when will this ceiling go up? The higher it is, the more interest accrued by the lender) for the next 30-years to minimise or avoid paying the interest altogether since the debt will be written off. Is the borrower then recorded as a debt defaulter? - DA). This is, of course, absurd logic, isn’t it? But...
  • The loan will accrue a real rate of interest equal to:

RPI to RPI + 3% for graduates earning between £21,000 - £41,000
RPI + 3% for graduates earning above £41,000

How It Works

By manipulating the rate:

Raising the rate and increase inflation?

Lowering the rate to reduce it?

  • This means that a graduate earning less than £21,000 has essentially received a ‘free-of-interest loan. (NO IT DOESN’T - DA. An interest-free loan has 0% interest added, NOT the RPI and is the higher of the two indices (CPI).: 5.3% and 4.0% respectively.
  • Mechanisms will be in place to prevent high earning graduates (or those from wealthy backgrounds) to unfairly ‘buy themselves out of the repayment system. Payment of interest for the greatest time is forced. Once in with a debt, then there's no obvious way out. 
    • The elephant in the room with this point? Those able to afford it don't need the loan in the first place. Those requiring the loan enter the trap, those not needing a loan never get trapped and move on without the interest chain around the neck! Such is the 'trapping' of privilege.
  • The government is putting in place various loans, grants and scholarships for applicants coming from less affluent backgrounds. Gets them ‘into the system.
  • All full-time students will be eligible for maintenance loans irrespective of income but these will have to be repaid on the same basis as the tuition fee loans. This simply increases the yield to the lender.
  • These loans will vary in amount and are dependent on whether you live at home, away from home, or away from home in London. 
  • Students from families with incomes below £25,000 will be entitled to a maintenance grant of up to £3,250 for help with their living costs whilst those from families with incomes up to £42,000 could receive a partial grant. These grants are yours to keep and, unlike a loan, DO NOT have to be repaid. Free or partial grants can have the effect of a free (up to) £3,250, but an attached huge burden of a (up to) 30-year debt.
    •  Note:
families and NOT individuals
    Trying to disguise the £40,500 - £21,000 = £19,500 x 9% -> £1,755/year or £146.25/month? By most standards that remains a good salary and is nothing like the average salary for an individual. That family income is defined seems to recognise the support necessary for the under-graduate.

        • What is the student (or sponsor) liable for should they withdraw from the course after the 1st year?
        Good news (!) for part-time students: for the first time, they will be entitled to a tuition fee loan (aka student loan) so long as they are studying for at least 25% of their time but they will not be entitled to maintenance support. (What’s the distinction between a maintenance loan and a maintenance grant? Is the former ‘with interest’ and the latter just ‘free’? - DA.)

        Differences between the old system (where’s the ‘inherited from the last government’? But this is ‘independent’ - DA) and the main things you need to know about the changes:

        • The Government is making substantial cuts to university budgets and, as a result, is allowing (or ‘forcing’) the Universities to introduce higher (predictably maximum in the majority of cases) annual Tuition Fees
        • Most fees are likely to be £6,000 or more (very cynical wording - DA), a few less than (?) £6,000 and some as high as £9,000 (this compares with a single fee for 2011 entry of £3,375 an increase or almost x2.7 in the ‘some’ cases. 
        • A University can charge different fees for different courses and they are likely to do so. (They can and so they will - DA.)
        • Universities wanting to charge more than £6,000 will have to make a commitment to spend some of the additional income in promoting wider participation and fair access for applicants from underprivileged backgrounds and also provide evidence of good student satisfaction, retention and success (rather a nebulous, but ‘essentially’ meaningless, concept - DA).
        • This commitment will be spelt out (defined? - DA) in their Access Agreement sent to the Office for Fair Access (OFFA - more ‘independence’) in spring 2011 and it is OFFA which will make the final decision as to whether or not a University will be allowed to charge the fee(s) they want to (in theory - DA).
        • It is anticipated that those discussions between the Universities and OFFA will be concluded in time for the new tuition fees structure for each University to be announced in Summer 2011, probably July.
        So, applicants planning to go to Universities in 2012 should know well in advance what fees are going to be charged for their chosen courses from year-1, but the overall bill after 30-years is somewhat less obvious.

        The number of questions is growing and that by itself is very worrying.

        The contractual small print must extend
        to many, many pages