Important news for those that want to go to university! A change might be due in the way your higher-education is financed!
Vince Cable, a Liberal Democrat MP and Secretary of State for Business, Innovation and Skills, recently announced the possible introduction of a “Graduate Tax”. This new tax is meant to replace the student loans system, which is currently implemented to help students pay for their university education.

Unsurprisingly, there is quite a big difference between these two systems.

With student loans:

• Your tuition fees are paid for by the government. This means you owe the government money, hence the term “student loan”. You do not need to pay this loan back until you have graduated and are earning more than £15,000 per year.
• The rate at which you pay the loan back depends on your income. It is currently 9% of your total earnings as long as you have a salary of £15,000 a year or more.
• Unlike a normal loan you would receive from a bank, the student loan does not have an interest rate. Instead, your student loan increases in line with inflation (the rate at which everything increases in price). However this will probably all change in September, with an interest rate of either roughly 1.5% or 4.4% being introduced!

With the proposed graduate tax:

• The government still pays for your education, but the amount you pay back depends on how much you earn as opposed to how much the government paid for you. Instead of paying back a sum, you will be taxed for a total of between 20-25 years when you graduate and start earning money.
• The amount of tax you pay depends on how much you earn. For example, a care-worker who has graduated will have to pay back 0.9% of their salary as tax, whereas a banker in the city earning top money will have to pay 2.5% of their salary as tax.

Graduate tax has both advantages and disadvantages over the current system:

+ves:

 
• It could stop students choosing courses by their potential earnings upon graduating and instead by their actual interest and academical ability.
• In the long term, universities may receive more money from graduate tax as opposed to the student loan system.
• With a tax, the graduate no longer feels like they have to pay back a loan, and the notion of being in debt as soon as you leave higher education is vanquished.

-ves:

• Many feel this new proposition is a re-branding of the current system in order to make the public more likely to accept a rise in tuition fees. Whereas with a loan system you can directly see how a rise in tuition fees affects you, with a tax system it is less clear, even though you may be paying back more under the tax system compared to the loan system.
• Prestigious universities, such as Oxford, Cambridge, Southampton and other Russell Group members, may receive less money from the government to fund their research as the money may become diverted to poorer, less academic universities.
• It reduces competition for top courses as students are less bothered by what they may ultimately earn as a result of graduating.
• It is unclear how foreign students will pay the tax, as if they decide to leave the country upon graduating, they would be exempt from tax.
• For graduates that will earn more, the tax would result in them paying more money to the government than a loan.
• For graduates that will earn more, they will be paying more money back in tax as a result of a higher salary anyway, so the fact they have to pay a higher rate of graduate tax in addition appears to be unfair.

Undoubtedly the new “Graduate Tax” is controversial, and some may argue it is far too early to change the current system, which has only been in place for 12 years.
Another interesting fact is that a graduate tax system has not been adopted by any other country. This may also be another indicator as to its ability as a graduate finance system.
The system also seems to suggest that some courses are more valuable than others, with a primary school teacher having to pay less in tax money to her degree than a top-earning accountant.
It should also be remembered that the Liberal Democrats pledged to abolish university fees if they gained power. Therefore it is ironic that Vince Cable,who was in fact the Deputy Leader during that campaign, is now proposing a scheme that could increase fees overall.
Fortunately, for those that oppose the new system, no official decisions have been made yet. This could all change very quickly however, so keeping a keen eye on the news would be a wise thing to do for all potential students, as a decision to shake up the graduate finance system could affect how you choose your course, and ultimately, your path in life.