“If you earn £30,000 as a graduate, you pay back £2.22 a day; now, there are people who buy cups of posh coffee for less than that.”
So says Conservative universities minister Greg Clark, who reckons this makes student loans a “phenomenal investment”.
Is he right? Let’s try to do the maths. According to the Student Loans Company’s payment calculator, a graduate earning £30,000 a year pre-tax will pay back £98 a month, or £1,176 a year [see footnote].
If we take Caffe Nero’s medium cappuccino – at £2.35 a cup – as our standard “posh coffee”, that means a graduate paying back £1,176 a year would be forgoing 500 “posh coffees”.
That’s about a coffee and a half a day. Hardly a difficult sacrifice, you might say. But Clark’s assertion masks how long it would take to repay even a modest loan at this rate. A total debt of £27,000 for a three-year course, for example, would take around 24 years to pay off. And that back-of-a-fag-packet maths is only anything close to correct if interest rates stay at the current level of 2.5%, which is highly unlikely, and coffee prices don’t increase at all, which is almost inconceivable.
Of course, had Clark pointed out that paying off a student loan costs the same as buying at least 12,000 expensive coffees over more than two decades, it wouldn’t have made for a soundbite quite as belittling. Put like that, though, it really does sound like a phenomenal investment.
• This article was amended on 5 February 2015. A government spokesperson has been in touch to clarify that the minister’s comments referred to Plan 2 repayments, made under the post-2012 repayment scheme. The original maths used figures from the Plan 1 repayment scheme, under which there is a lower repayment threshold, and consequently monthly payments are higher.
A graduate on Plan 2 earning £30,000 pre-tax and owing £27,000 will pay back £67.50 a month, or £810 a year. That’s 344 coffees at £2.35 annually — just under one a day.
It would, however, take even longer to repay that £27,000 loan under Plan 2. Based on an assumed 2.5% interest rate - it would take about 33 years to repay. Or rather, it would if the loan wasn’t written off 30 years after the graduate became eligible to repay it. That still works out at 10,320 posh coffees - more, of course, if the graduate’s income rises over the course of their career.
So, to clarify: the minister’s maths is right. A post-2012 graduate on £30,000 does repay around the cost of a fancy coffee every day. They do, however, have to keep doing so for the next three decades of their lives. That’s a lot of posh coffee – especially if you’re not posh.
