More Student Loan Repayment Fun

In order to illustrate the interaction of the three main rules that apply to Student Loan Repayments (interest rate increases with salary; repayments increase with salary and any balance outstanding is written off after thirty years) which I wrote about yesterday evening, I have done two charts in Excel.

The first shows the total nominal repayments - and it is quite clear that somebody who leaves university and earns £45,000 a year for the next thirty years pays a lot more in pure cash terms than anybody else. So the Torygraph wails that Mr £45,000 pays more than Mr £20,000; and Ed Miliband wails that Mr £45,000 pays more than Mr £100,000. But just adding up the total cash repayments is quite misleading, as it does not take the time value of money into account. It is about as informative as saying that if you repay your mortgage over ten years (which I once did, just for a giggle), you pay a lot less interest than if you repay it over twenty years. Of course you do - it's like saying it's cheaper to rent a car for a week than for two weeks.

It is far more realistic to discount the future repayments at (say) 5%, which shows that the three rules, as bizarre as they might be, sort of arrive at an equitable result - provided you are part of the flabby LibLabConsensus that finds it sensible for the taxpayer to lend people money to go to university who don't even expect to earn £21,000 at the end of it, and then write off the debt after thirty years.