This is a genuine question here as I don't know the answer, but if you're a graduate earning £22k a year, the government have said you'll be paying let's say £400 a year back. However as you're repaying your accumulating interest. I made an assumption earlier that the starting rate of interest would be RPI + 0.5 % (5% at today's RPI). Correct me if I'm wrong here, but doesn't that mean on your debt of £27k, you haven't even covered the interest charge on your loan?
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.
