Student loans – a cynical contract manager’s view

We wrote about incentives, supplier behaviour and unintended consequences the other day here.

That got me thinking about the UK student loans issue. So what unintended consequences might emerge from the new system that is being put in place? If we look at this as a commercial contract between the State and the student, how might the student approach it given the contractual provisions and incentives?

We wrote last time about getting a cynic to look at each contract and think about what might go wrong; here's a cynic's eye view of student loans with five unintended consequences that may come to pass.

1. Lack of incentive to earn more and have to start repaying my loan; I start paying the loan back once I earn £21K . So why bother? I'll just settle for a quiet life earning £20,999. Or go travelling every couple of years.

2. I'll set up my own business and pay myself a small salary (assuming dividends don't count towards the earnings threshold for repayment). If they do, I'll find another way of taking some money out of the company that doesn't count towards repayment thresholds.

3. Emigrate outside the EU. Catch me if you can. New Zealand? South America? Lots of places that don't have 50% tax and offer interesting opportunities for a bright young graduate.

4. Just don't pay. Look at how difficult UK Government(s) have found it for many years to extract money from people via the Child Support Agency and similar bodies.  Will this be different; if I'm just really awkward might I get away with avoiding payment for years?

5. Legal action; claim mis-representation and therefore that my debt is null and void. The Government told me I would earn hundreds of thousands more by getting a degree. It hasn't  worked - I'm still a lowly civil servant on £25K after all these years. And I have debts of £50K. Or perhaps declare myself bankrupt? (I don't know if these debts will have some non-write-off-able status).

I'm not saying the basic concept that graduates should fund some of their costs themselves isn't right. But I hope the Department of Education has employed a team of cynics to look for loopholes and think about how to plug them!

And one final point; how long before we hear cries like this:

"It's not fair. My boss earns 5 times as much as me but (s)he isn't paying anything back because his / her parents were poor; but (s)he earns £200K a year now and b****y well should be paying something!"

Voices (6)

  1. Rhys:

    It certainty isn’t free in the land of sheep and rugby but, at the moment at least, it is considerably cheaper (3k odd, although Aberystwyth are looking at charging 9k from 2012). Everybody pays the same expect for “International students” who pay a whopping great load more. International students are those that, amongst other qualifications do not have a “Relevant connection” but being a member of the EU /EAA are classed as having a relevant connection and are charged at the Home Level (which would fit in line with the EU stance Jason mentions). Unfortunately suing universities for poor grades is an increasing trend

    http://www.dailymail.co.uk/news/article-1329567/Students-winning-thousands-pounds-refunds-poor-teaching.html

    Genuine poor teaching or more time in the books and less on the sauce?

  2. Jason - Procurement Skills:

    I’ve not looked at the Treaty/Regulations/case law to be certain but it appears the general rationale is that European law forbids discrimination between member states, so if Scottish students (based on domicile) go free, then so must every other EU student. It permits discrimination inside member states. The UK is a state. England and Scotland are nations (or Regions? in EU terms) within the state. There was a case in 2005 (Emma Block?) that I think supported such differential treatment within the UK.

    Should Scotland gain full independence then this would seem likely to change.

  3. Peter Smith:

    I just can’t understand how it can be legal for the Scots unis to charge English students more than anyone else? Isn’t it racial discrimination or something? Or a breach of human rights? It does seem incredible! Perhaps we’ll see lots of students ‘living with their Aunty in Glasgow’ when they enroll … a bit like all these footballers / rugby players who discover a Scots / Welsh / Irish great grandfather when it becomes clear they won’t make the England squad!

  4. Kevin:

    As I understand it, Scottish and Welsh University education is free to applicants living in those countries and also others from the EU but not to students from England. The cynic would look to work out what constitutes residency in a non English location. This would be difficult straight from an English secondary school but feasible after a gap year.

    .

  5. David Atkinson:

    Excellent piece. I also like Christine’s Option 6′.

    I have two young children and am already getting my head around the idea of them studying overseas. By my reckoning, employers of the future will give greater recognition to qualifications earned outside the U.K. than they were in the past. Globalisation is no longer some future concept.

    Of course ‘overseas’ might include Scotland pretty soon, judging by this week’s election results. As a place to live it’s going attract more than a few from south of the border over the coming years. 🙂

  6. Christine Morton:

    Option 6: Cost Avoidance.

    Go to school in another country where it is cheaper or more scholarships are available.

    [We’re seriously considering this as my son’s transferred American citizenship can only be transferred to his potential/eventual children if he resides in the US for 5 years. So to us, it’s a side benefit.]

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