The claim
“Those who earn the most will pay over the odds.”
Deputy Prime Minister Nick Clegg, Prime Minister’s Questions, 10 November 2010
Cathy Newman checks it out:
The jousting in the Commons between Nick Clegg and Harriet Harman paled into insignificance after the violence that ensued just a few hours later. But it was pretty heated nonetheless – with facts and figures hurled about with gay abandon. The FactCheck team has zeroed in on one – the deputy prime minister’s claim that higher earners would pay “over the odds” for their university tuition under the government’s proposed scheme. That supports his argument that raising tuition fees – far from putting off poorer students as critics fear – is a progressive policy. So is he on firm ground?
The analysis
What Mr Clegg is referring to is the interest rate incurred by graduates on their loans for tuition fees.
Graduates earning under £21,000 will not earn interest on their loans, those earning £41,000 and over will build up interest at inflation plus 3 per cent, and those in between will incur inflation plus a tapered interest rate between zero and the 3 per cent, but the exact details of how this will work are yet to be announced.
The government borrows the money to give out the loans at inflation plus 2.2 per cent, according to the Lord Browne review into higher education. So those being charged above this rate will be paying “over the odds”, according to Mr Clegg. The Institute for Fiscal Studies estimates this will be those earning roughly £35,700 and above.
But that’s not to say they will be paying the most – graduates will pay 9 per cent on their income above £21,000 so, as we’ve previously observed, those on higher earnings will pay back more in each monthly instalment, allowing them to pay back their loan more quickly and so have less time to build up interest on that loan.
The government’s plans do include a penalty for those people who opt to pay more than that 9 per cent and so pay off their loans early, but it won’t apply to those who stick to the 9 per cent repayment rate.
We should point out that the definition of “over the odds” is that the person pays more for something than it is worth – far be it for us to judge if a degree is worth up to £9,000 a year plus inflation plus 3 per cent.
Cathy Newman’s verdict:
Nick Clegg’s claim that higher earners would pay over the odds rests on his insistence that people earning over £41,000 will pay higher interest rates on the loans to cover the cost of tuition fees. In addition, if higher earners try to avoid interest charges by paying the fees off more quickly than 9 per cent of their income over £21,000, they’ll be hit with a penalty. That penalty has yet to be determined however, so we’ll have to wait and see exactly what “over the odds” means.
The biggest flaw in the deputy prime minister’s argument, however, is that because all earners will sacrifice nine per cent of their salaries to pay back the fees, those on the biggest salaries will pay them back quicker, and therefore incur less in interest.
