Graduate tax in Britain really inappropriate?
The newly proposed graduate tax system in Britain caused an animated discussion on whether it is appropriate or not, considering the students’ quality of life during and after their studies. The discussion arose when figures were published that showed how many young people in Britain are currently in debt because of high tuition fees. Many people argue that this system proposed by the National Union of Students (NUS) really discriminates against the people who work hard enough to obtain well paid jobs in their future life. Therefore, this essay will assess if a graduate tax system could be an appropriate alternative to the existing tuition fees by analysing the ideas behind both approaches.
The current top-up tuition fees result in the fact that many young people (44% of the 18-24 year-olds) are not saving any money at all because they need all they have to pay for their studies. Although 64% of the students are now more concerned about their financial situation than ever before, they are unable to tackle their problems. Nowadays, about 8% of the graduates are spending more than half their salary on unsecured debt which shows the struggle to pay back unsecured loans that some students face after graduation. Only young people from more affluent households are able to pay the tuition fees without making any debt.
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The graduate tax system benefits the people who work in low paid industries. This system is based on the notion that graduates should make contributions from their salary for a fixed period of 20 years. The amount depends on the individual salaries, which means that the top fifth of earners would have to pay 2.5% of their salary (about £125 each month) whereas the bottom fifth would pay 0.3% of their monthly income (about £5 per month).
People who earn less than £15,000 a year would not have to make any contributions. The contributions would be paid into a trust fund, the Higher Education Funding Council for England (Hefce), which would manage the money and transfer it to the universities. After 20 years, the total revenue from these graduate contributions would be £6.4 billion each year, rising to £7.9 billion after 30 years and up to £8.4 billion after 40 years whereas the current tuition fees only earn £4.5 billion and will rise to £6 billion if the fee cap is raised to £5,000 per year. This means that on the one hand, the graduate tax system would give the universities the double amount of funding they currently receive. On the other hand, the graduate tax system would need a longer time (at least until 2013) until the exchequer would receive any tangible benefit.
Introducing graduate taxes would prevent a market where only the rich could afford to attend the most prestigious universities. People of poorer families would be allowed to go to university without having the fear of making any debt and being independent from their parents, as they would not have to pay tuition fees any more. The problem in the current system is that it is almost impossible for students from poorer backgrounds to meet the costs of student life or the increasing cost of tuition fees which means that this system discriminates against those who need the support payment most. Therefore, students should fund their own education to disengage themselves from being a financial burden to their parents. The graduate tax system enables the students to get their college education without having to make any up-front payments on the understanding that they will pay back the costs of their education when their income after graduation reaches a certain level (more than £15,000 per year).
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This understanding would remove the pressure to pay off unsecured debt. But it also discriminates against the people who earn more money as they would have to pay back a lot more than the people earning less money; The richer people would have to pay about 25 times more which would be about £30,000 compared to the £1,200 the poorer people would pay back. Oponents argue that the existing revenue laws already include many functions of a graduate tax by ensuring that graduates are likely to be the subject to the higher rate of income tax. But as the system fails to distinguish between graduates and other high earners who have never studied at third level, this argument is not as valid as it seems to be.
In the future, students will be deterred from applying to universities as the universities are lobbying the government to lift the current cap on tuition fees and allow them to set the fees individually. With tuition fees rising from currently £3,225 a year in England to £5,000 suggested by vice-chancellors, students would have to borrow even more money from the government through the Student Loans Company (SLC) than they borrow now which would lead to a dramatic increase of debt each student has to pay back in the future.
According to the NUS, the universities would be better off in the future if they established the graduate tax system and about 30,000 students agree with them by signing an NUS repetition against the current system. But, as boths systems have the disadvantage that they discriminate against either the top of the wealth scale or the bottom, it might be the best idea to establish some kind of hybrid model which allows two ways of paying required money: Students from affluent households would be liable to pay their tuition fees up-front whereas the majority would be funding their studies through the establishment of a student loans system that offers discounts as an incentive for early repayment. This hybrid model would result in the opportunity that universities could raise money quickly which could be important in times of a financial crisis and gives the students the opportunity to organise their future life without any unsecured debt.
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