Thursday, February 19, 2015
By Kathy Gyngell for The Daily Mail
Published: 15:00 GMT, 11 July 2012 | Updated: 15:05 GMT, 11 July 2012Addiction to debt is the source of our social and economic woes not the solution – yet politicians keep pushing it as a way of life.
It is not enough for them to trap the country in debt. If government is to have its way they would trap the next generation in it too, from cradle to the grave, from student debt to care home debt.
New Labour might have fooled us that ‘credit’ was everyone’s route to prosperity. That everyone could have holidays abroad and live the high life. But it was a fool’s paradise as we have learnt to our cost. The bubble burst. But it is taking a while for the truth to struggle out.
Students at Oxford University College where many dream of studying will not be exempt from the often crippling debt attending university can leave graduands with Many in the government have yet to face it – the fact that debt was never the basis for prosperity or for happiness.
Nowhere could this be more graphically illustrated than by the mind boggling bail outs going on in Europe today. Like drunken gamblers lurching from one crisis to another through debt, deferred debt and ever mounting debt, their ‘get lucky’ politicians only put off ever worse crises.
Not very long ago the average citizen only incurred one serious debt – it was the price of securing a roof over his head. But his mortgage had a solid asset set against it – that was until irresponsible lending inflated house prices and mucked everything up. That was a wake up call.
Today we face the prospect of barely paying off the mortgage by the time we are forced to borrow against it again – to cover our old age care home.
So what price saving? The message from politicians is that there is no point and we will be penalised so we might as well all be irresponsible
According to David Willets, our not so foresightful Universities Minister, student debt is still an investment.
So it is some relief to see now that young people are not that gullible. They are begging to differ and mark their own road.
15,000 of them this year have chosen to give up on their university dream. There have been 9 per cent fewer applications this year. It tells us that they simply don’t think it is worth it; they are not prepared to risk it – despite all exhortations.
Willets should take note.
This after all is immediate gratification generation second to none. This is the generation we have spoilt with game boys, play stations, computers and mobile phones, whose every consumption whim ever indulgent parents have met - thanks to once infinite credit.
They can see what he, from his privileged and secure standpoint apparently can’t, that within just a few years higher education has turned from an asset to a burden.
So while Mr Willets might think it OK to hang an amount of debt equivalent to a small mortgage over students heads while they study, in increasing numbers, young people don’t.
Average student debt is already staggeringly high at £26,000. This year it doubles thanks to the government’s go ahead to universities to hike their tuition fees. Few are holding back – some of the most unlikely of them have taken advantage to charge the maximum £9000.
For the students starting this autumn this means ending up with an average £50,000 to £60,000 of debt – that’s before they even start their working lives.
Student debts have been driven by government into an inflationary spiral.
It is true that if they are deliberate drop outs or simply fail to find a job and never earn a bean their debt will be written off.
Average student debt is already staggeringly high at £26,000 This may not bother Mr Willets but it is hardly the answer. Student debts are forecast to cost the taxpayer around £9 billion a year. According to research by investment managers Skandia, unless students immediately earn a £50,000 salary after leaving university, a 'significant amount' of their debt will be written off.
That is about as likely as winning the lottery. The most industrious, focused and well qualified young graduates are now struggling to find even an internship – application after application. Anyone acquainted with this generation knows the truth of this.
So it is frankly irresponsible of Ministers, some of whom have children of this age, to continue to insist that students must not be put off for financial reasons.
America’s trillion dollar student debt is a warning if nothing else is. It should be the catalyst for a fundamental reassessment of tertiary education there and here.
We should be prioritising honestly what it is worth the taxpayer paying for, rather than inefficiently deciding by default of debt. We also need a serious review of just how we spiralled into this inflationary mess so quickly – and its catalyst, the hubris that university education could be opened to everyone, not just the academically most proficient.
For this was never affordable or sensible. But it is what led to the setting up of the Student loans Company in 1990. It might have seemed fine at first to provide students with extra help towards living costs. The take up was only by 180,200 students or 28 per cent of eligible students. Their average loan was £390.
That was before Sir Ron Dearing’s recommendation to Tony Blair that students should contribute to the costs of university education. The £1000 tuition fee was introduced in the 1998/9 as a result and maintenance grants were replaced by repayable student loans for all but the poorest students. Debt happy Labour didn’t care the monster they had unleashed
The monster of student debt: Sir Ron Dearing suggested to Blair that students should contribute to their own education However Liberal Democrat leader, Charles Kennedy described it as "one of the most pernicious political acts that has taken place". I agree.
And then, despite Labour’s manifesto pledge that they would not introduce top-up fees they did just that. They raised them to £3000 per year in 2004. By 2006 the Student Loans Company was giving out £2.79 billion in loans.
We should not forget that this was against a backdrop of personal household debt that reached an unprecedented £trillion that year. Low income families were far more indebted than others.
So it is somewhat ironical that the Coalition government, after hiking tuition to £9000, has appointed Professor Ebdon to get more disadvantaged pupils to university.
Far more challenging is the need to understand the radical change in attitudes towards borrowing that have taken place over the last few decades that have led us into this mess.
For it is not that long ago than that the whole idea of unsecured debt – which is just what student loans on the ‘never never’ are - was anathema.
There was a stigma to being debt. It was a safeguard that social liberalism has subsequently eroded with the full backing of governments – particularly the Blair Brown governments.
Back in the 1960’s when I grew up it was still common for parents to encourage their children to ‘save for a rainy day.’ In my family it was considered not just imprudent, but morally wrong, to spend without having first saved. If you had no money you did not spend.
It was a better environment to grow up in. It stood me in good stead.
My father earned next to nothing and my mother worked voluntarily so my place at Cambridge University was paid for by the Local Education Authority. Over the eight to ten weeks of term time I lived on the £5 a week I allowed myself to take out of the bank. I was very careful. There were no student overdrafts. I worked most vacations. It is a common story.
Most students – apart from the public school toffs (who we looked down on as academically inferior) with their cars and their point to point pic-nics – were in the same boat. We did not regard ourselves as poor though had next to no clothes and were restrained in our eating, drinking and smoking.
Though a natural exercise in restraint that contemporary students would probably be appalled by it is one that will have to be learnt again. Government should not stand in the way.
For in my life time credit moved from being dangerous, to morally neutral, to being beneficial. What was formerly bad is now still considered good and in a language inversion the term ‘credit’ is applied to what our grandparents called ‘debt.’’
It is hard that it falls on young people – not their profligate elders – to judge now whether ‘credit' delivers its promises or not.
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