Debt education – Martin Lewis #educationfest


“We are a nation educated into debt but never educated about debt.”

Lewis said it was ‘a national disgrace’ that the ‘University loan’ has educated students to think that debt is not a stigma. He does not think that this situation is actually a loan, but it has legitimised the concept of taking out huge debts. What he said we need to do is teach the skills to delineate good debt and bad debt. 

The biggest cause of debt is change of circumstance, and he share with us several examples of ‘grey debt’, where decisions have to be made based on weighing up all of the options. There is a difference between a bad decision and a bad outcome, sometimes situations change, and we need to educate students to weigh up the range of factors rather than just the obvious.

Students need to understand the fact that there is no such thing as ‘free’ education, it is a case of where the burden of cost lies. For this year’s new intake, there may be a perception that more money will equal better provision, in fact many courses will be having to provide the service for slightly less…

The decisions for whether to take out student finance should be based on understanding, not whether it is good or bad, but whether they understand the factors and what will happen if their circumstances change.

In the case of student finance what you pay depends on what you earn, not what the cost of the education was. No one pays fees up front now, and they pay it back once they have graduated and are earning enough. He argued that anyone can afford to go to University, it just depends on how they want to make the decision.

Communicating this correctly is one of the most important things, because making that decision based on intelligent use of information can make the difference that results in social mobility. This is not the same as everyone going to University.

For those parents who are petrified about having to pay back the £30,000 of debt if their offspring do not get  a highly paid job he had a strong message; this isn’t how it works. There is a scale and you don’t pay anything unless you earn a certain amount, and this increases as your salary does. Also the debt is written off after 30 years. 

2012 starting graduates will actually pay less than current graduates per year. However, they will be paying over a longer period and they will be paying more. In the short term though they will have more in their pocket in the early years of their job.

Repayments are the same regardless of whether your course costs £6,000 or £9,000. The loans also do not go on your credit file. The money also comes straight out of your pay before you even see it; in many ways like a tax. He argued this should not be called a loan, but something more along the lines of the Australian system’s ‘graduate contribution’.

For 14 years we have told students they are talking a loan when they are not, and as a consequence we have mis-educated people about debt, something we are seeing huge ramifications of.

These issues are not complex, but they do involve a certain way of thinking, a financial literacy which many parents find a challenge let alone the young people considering University courses. With changes in the system an understanding of these issues could affect decisions about going to University hugely, not just whether to go or not but also which courses to choose and whether to move or stay at home. Lewis argued that we need to do more in schools to increase awareness of these issues and financial literacy in general.

Related posts:

The art of thinking - A.C. Grayling #educationfest
The tyranny of an over mighty state - Sir Tim Brighouse #educationfest
Inclusion, Relevance, Ambition - Rod Bristow (Pearson) #educationfest

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