Once accepted, students have to think about paying for the next three to four years. That's not a fun prospect. Nevertheless, the British state-funded system is fairly risk free and places a less onerous financial burden on economically disadvantaged students. "Unlike the U.S., students here don't have that debt around their necks all their lives," says Anna Vignoles, an education and skills expert at the London School of Economics.
Here's why: Repayments are income contingent. Graduates don't repay a cent until they're earning at least $24,750 a year; they then pay 9 percent of whatever they earn over that amount, and it's a simple payroll deduction, like income tax or Social Security. Graduates whose earnings never hit that threshold, or those who temporarily lose their incomes, don't pay. After 25 years, any amount still owed is forgiven. English schools can charge a top tuition of $5,320 a year—and most do. So any student, regardless of parental income, can borrow up to that amount.
Students can also take out cost-of-living, or maintenance, loans, which are repaid in the same way. The top amount they can borrow, if they're living in London and away from home, is $11,431 a year. Maintenance loans are, however, means-tested. If their household income is more than $83,784, the amount students can borrow is reduced, depending on how much more their parents earn.
Interest rates on student loans are equal to the rate of inflation. However, another LSE economist, Nicholas Barr, argues that's too low.
There are some signs that the United States could be moving toward this model. This summer, the Department of Education enacted an income-based repayment program for student loan debtors. Those who use the program can cut their federal loan debts to less than 15 percent of their income. The federal government also has enacted a loan forgiveness program for those who pursue public-service careers. They can have their federal loan debt wiped clear after 120 payments (or 10 years).
For many students, these programs should offer welcome relief. But there still is some ground to cover before the American student loan program matches its British peer. Barr says that an income-contingent repayment plan in the States should charge the same rate it costs the government to borrow the money. A real interest rate that's essentially zero, Barr says, puts too much fiscal pressure on government finances, resulting in student loans that are typically too small—which reduces access to higher education because many disadvantaged students need larger sums to truly cover expenses. Bigger loans with slightly steeper interest rates won't punish poorer students, Barr says, because they're protected by the income-contingent payback scheme and, in the United Kingdom, a 25-year forgiveness limit. The American income-based program offers some interest rate benefits once payments begin but still charges an interest rate (this year, it's 7.1 percent).
Taking a break. OK, once students know which college they're attending and how they'll pay for it, what's next? How about a year off? The British are the world leaders in taking so-called gap-year breaks. Around 230,000 British 18-year-olds take one each year. Tom Griffiths, founder of Gapyear.com, reckons that around 15 percent of college-bound students defer their studies for a year to . . . well, to do what? Some work to shore up their finances. Some head overseas as volunteers for various charities. Others "road test" potential careers by getting a "gofer" job in their industry of choice. "But the vast majority just backpack around the world," Griffiths says.
Many also mix and match their options. Tom Hart, for example, spent the first seven months of his gap year working in a pub to earn money for a three-month trip to Southeast Asia. He and best friend Theo Ford then tramped through Vietnam, Cambodia, Laos, and Thailand. Hart's home now, back at the pub, working to earn extra money for spending once he's at college.