Postgrad loans may not be drain on public purse – not necessarily so for postgrads

Director of the Institute of Fiscal Studies, Paul Johnson, gives this analysis of the impact of post graduate loans as set out in the Autumn Statement:

“The number of UK students obtaining taught postgraduate qualifications has doubled since 1999.

Connoisseurs of the IFS oeuvre will know that we have calculated that one of the features of the current system of undergraduate loans is that perhaps 40% of the money loaned will not be paid back, with up to three quarters of graduates never paying the loan back in full.

This has obvious consequences for the public finances. Is the same likely to be true of postgraduate loans?

Probably not. The loans are smaller, postgraduates earn more, and the government’s illustrative scheme charges a higher interest rate.

Our initial modelling suggests the long term cost of the illustrative scheme should be modest.

But it is worth saying that those who take out the loan would face rather high effective marginal withdrawal rates on earnings of 50% for basic rate taxpayers (20% income tax, plus 12% NI, plus 9% repayment of undergraduate loan, plus 9% repayment of postgraduate loan) and 60% for higher rate taxpayers.”

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