The impact of university tuition fees – a spreadsheet

I noticed this morning that the BBC had published an article on the impact of the forthcoming changes to university tuition fees in England: Graduates could pay back double their student loans.

As it happens, I’d started to put together a spreadsheet to try to work out the impact of the new funding arrangements for my own interest. As the BBC report doesn’t show its working (tut tut – they’d lose lots of marks in a maths exam for not doing that), I’m sharing my preliminary spreadsheet here (updated to version 2, 1830, 17th March 2011). What I hope is the final version of my spreadsheet (version 3, 11.30pm, 17th March 2011) is available for download from this link.

The BBC have subsequently updated their article and have now provided their spreadsheet too.

Some notes:

• The overall thrust of the BBC article is correct – many graduates will end up paying around double for their education compared to what they borrow in cash terms. However, if you take into account the value of money decreasing over time in line with RPI as my version 3 spreadsheet now does, then the repayment in real terms is just about the same as the amount borrowed, assuming RPI at 2% for my starting example in the spreadsheet. If RPI is more, then the repayment in real terms rapidly becomes much less than what has been borrowed originally.

• If you don’t like my assumptions you can change them. The salmon pink cells can all be changed to reflect your views of fees, maintenance loans, future RPI, future average earnings increase and estimated future salary.

• I haven’t yet put in the necessary sophistication to deal with looking at it in value of money terms (having £1 today is worth more than having £1 in a year’s time) nor the flexibility to cope with the reviews of the £21,000 threshold for the 9% contribution starting point. As a consequence, it does overstate the total repayment at the moment. Of course, you can (crudely) compensate for that yourself by assuming lower levels of salary increase. Version 3 of the spreadsheet now has all this in correctly (assuming that the £41,000 threshold above which interest rises to RPI+3% rises in line with the £21,000 threshold – the BIS website is silent on this issue).

• If you’d like the password to unprotect the sheet to deal with these limitations yourself (or to correct any other issues you may find), then drop me an email and I’ll let you have it – provided you agree to send your updated version back to me so that I can share it here.

• The spreadsheet is in OpenOffice format (not Microsoft Excel). You’ll therefore need something capable of working with the .ods spreadsheet format.

If nothing else, the spreadsheet demonstrates some interesting features of the new system.

• It will cost you (next to) nothing to get a university education if you never earn (much) above the £21,000 repayment threshold.

• If you become a mega-earner, you’ll actually pay back less in cash terms  than someone who never clears the notional debt incurred and so pays an additional tax of 9% of salary over £21,000 for 30 years. (Value of money calculations excluded and also in the absence at the moment of any clarity around how BIS intend to ensure that people who do pay off early make a “fair” contribution).

• The system assumes a direct connection between having a degree and future earning power. This may just about be a reasonable assumption for someone taking their first degree, but it is definitely not a reasonable one for people like me who take up part-time study not directly connected to their work later on in life.

And, of course, there are lots of other ideological issues underlying the changes which say to me that this scheme isn’t what our politicians should be imposing on tertiary education in the UK, but I’ve droned on far too much about that in many, many previous posts already.