UK reforms will leave graduates in debt

The British government's economic reform plans which include hike in university tuition fees and higher taxes will leave many graduates in debt until their mid-50s.

According to a study by Money Mail, graduates on modest incomes face an effective tax rate of 45 percent and crippling debts for most of their working lives.

Reforms to the level of tuition fees and the way loans are repaid will leave many in debt until their mid-50s when they will be struggling for their own children's university education, the Media reports said .

The NatWest Student Living Survey has found that tuition fees will rise to as much as 9,000 pounds a year while cost of living can be up to 8,210 pounds a year, meaning the total spending 17,210 pounds a year or 51,630 pounds over three years. The maximum government loan is likely to be 43,500 pounds.

For those on modest and middle incomes, the amount of interest is likely to be greater than the amount they repay, meaning the debt will balloon through their life until, after 30 years, it is written off by the government.

The analyst looked at two scenarios that could encompass millions of graduates in essential occupations such as teaching and nursing.

In the first case, they assumed someone starting work owing 43,500 pounds, earning 21,000 pounds a year and receiving a 3 percent pay hike each year. After 30 years, the person would have paid 33,217 pounds, but, because of the interest, he would still owe 73,659 pounds, which would be written off.

If their pay rose by a more generous 5 percent a year, they would repay 64,239 pounds, but still owe 26,406 pounds.

Another research shows a graduate earning 22,000 pounds will lose a total of 6,029 pounds - 27 percent of their total pay. It would reduce their take-home pay to 1,330 pounds a month.The new fees will see students accumulating £30,000-40,000 of debt, but the burden will be more like a time-limited graduate super-tax than a loan repayment. It may be irksome for poor students to see rich ones having their fees paid off by parents, but the rich are always different. What matters is that the poor should not be financially disadvantaged.

"We risk creating a generation of students who will never be able to pay their way out of debt," says Chris Tapp, of debt charity Credit Action. "They are going to be lumbered with a lifetime of borrowing. The danger of student loans rising is that other more expensive credit may get put to one side."

"This is just the start of a cycle of problems. Parents may be so worried about funding their child's education that they borrow to help them out."