I have calculated average wage rises in another thread (quoted below) with excel spreadsheets taking into account a 4% or 2.5% annual salary increase above inflation as two sets of averages. I assumed a 4% RPI inflation rate (which is the current one as being the average maximum long term offset with the tapered interest rate for the loan of 0-3%, I averaged it to be 5% taking into account the BofE target of 2% for RPI) and that the annual average increase included job progression and promotion, and given that the average salary in 2010 is £26k and the average salary in 1980 was £5.7k the extrapolation is well within conservative projections even for the higher average increased throughout a career. (£103k would have buying power of £40k-£50k today)
The above example was only to illustrate what someone ONLY ever earning the average wage adjusted for inflation would repay (again adjusted for inflation so that the figure is given in current buying power values)
Ok we have a result for you. (I hope you appreciate the effort)
You are correct to assume the debt increases in year one and indeed for a number of years if we assume an increase of 5%/annum and repayments of 9%/annum on £22k.
In the first year he will pay a total of £90/annum toward the loan of £27k but accrue £1350 in interest.
However if this stays static then he will only repay £2700 in total at the end of the 30 year period and the rest is wiped off, so his actual contribution is £2700, or less than one years tuition at current levels.
Now let's we take it one stage further and extrapolate this in real terms across the 30 year working lifetime of a graduate.
We need to make some assumptions so given that RPI is likely to be near it's peak (given the BoE target of 2%) we can safely assume that 5% is a reasonable figure for an annual increase over the lifetime of the loan regardless of the income. If we also assume that the Graduate will over the 30 years increase his salary via normal annual rises and promotions in real terms by 4%/annum on average (4% plus RPI).
The principle loan amount grows until it reaches it peak of £32,842 in year 9, the Graduate is earning £38,943 in year 9 and repaying £1,913/annum in contributions for that year. From year 10 until year 19 the principle amount decreases until in year 20 the graduate is in surplus, hence it is reasonable to extrapolate that the average graduate, given average increases in salary against average increases in RPI will repay his loan in 20 years having paid a total of £57,986. A full 5 years quicker than the NUS graduate tax proposal and with paying a lower annual fee and total fee overall.
Alternatively if we assume a more conservative view of the graduate's earning potential and allocate a 2.5%/annum (+4%RPI) rise the picture changes so that the total debt is repaid in year 24, still before the NUS graduate tax system and with paying less/annum and overall. Most importantly the amount repaid whilst he is a low earner is pretty insignificant and not a liability to his monthly income.
Of course in all likelihood his progression will be quicker at the early end of his career which will shorten the time it takes to repay the loan and thus the total amounts significantly, but from the examples I think you will agree that it is not as onerous as the NUS proposals and for the lower earners it is infinitely better than what we currently have or what the NUS propose in regards to the actual real amount of contributions expected.
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These figures are only for necessities and would not provide for any lifestyle whatsoever.![[J.D.C]](/styles/overclockers/avatars/3.png){kind=avatar}
