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University Debt Hike to Pile Pressure on UK Youth

Thursday, 2 Dec 2010 | 2:32 AM ET

Angry British students, some as young as 13, have taken to the streets recently, protesting against the government's decision to hike university fees in a bid to narrow the country's bulging budget deficit.

Police officers hold back demonstrators trying to gain entry to 30 Millbank, the headquarters of Britain's Conservative Party, during a protest in central London.
Carl Court | AFP | Getty Images
Police officers hold back demonstrators trying to gain entry to 30 Millbank, the headquarters of Britain's Conservative Party, during a protest in central London.

The UK government has proposed raising the cap on student fees up to £9,000 ($13,950) per year from the current maximum of £3,290. What impact will the changes actually have for young Britons deciding whether they can or even should go to university?

The government plans are a "gamble" that will "create turmoil for universities and mountains of debt for students," according to Labour’s Shadow Business Secretary John Denham.

They include withdrawing public money from universities and introducing a more market-led model where courses would be mostly funded by fees and have to compete to attract students. But the government knows these moves will contribute little to deficit reduction, Denham said in a statement.

One of the key criticisms of the fees is that they could prevent people from poorer backgrounds from attending courses, meaning that universities could become more elitist and not open to all.

But those claims are unfounded and "scaremongering," Nicholas Barr, professor of public economics at the London School of Economics, told CNBC.com.

The increased fees could actually bring improvements and public access to higher education is not affected negatively by fees, Barr argued.

Lacking Detail

The level of access is almost solely impacted by the child's performance in school, suggesting a focus on early education leads to later improvements regardless of background, he said citing various studies.

A tax-funded model would involve less-well off people that didn't attend university paying towards university courses for people from all walks of life, Barr added.

Incentives to produce quality degree courses are muted under a publically-funded system, but a more market-driven model could create competition and theoretically push up the quality of the product, he said.

But the current proposals are "so lacking detail that independent analysts have been unable to fully assess their fairness or value for money for the taxpayer," President of the UK's National Union of Students Aaron Porter told CNBC.com.

"The last thing students and families want or need is for ill-thought out proposals to be steamrollered through parliament without proper scrutiny," Porter said.

Value for Money?

Even though the cost of attending university is set to rise, it is usually still worth doing and has a value beyond that of extra earning potential, he said.

"A university education has the power to transform students' lives and those of their communities," Porter said. "To reduce the notion of the value of a degree to the personal financial benefit obtained would be to ignore the public worth of having a well-educated and skilled population."

Senior UK Recruitment Consultant at Goodacre, Gary Sims, told CNBC.com that a university degree is still a key requirement for employers and students should think carefully before shunning higher education in favor of working straight away.

"It is worth getting a degree… even if it does get you into debt. Your opportunities are so much more limited without it," he said.

But choosing the right degree is more important than ever, as employers are stipulating which they want, according to Sims.

Potential job seekers should do their homework on particular courses to ensure that they will be right for their chosen career and attractive to employers, he added.

Loans taken on by students have favorable interest rates because they are managed by the government, Barr said. They also have conditions including a minimum wage bracket that allows graduates to put off repayment.

Under the new proposals, students could put off their repayments until they were earning £21,000 per year, which is higher than the current £15,000.

However, the current subsidized interest rate of 1.5 percent would be raised under a "progressive tapering" system.