Which is cheaper for the state: student loan or tuition?

The government has radically cut back government-sponsored higher education sites with a 20-hectare cut a few weeks before applying for higher education, causing huge confusion.

While the goal would be worthwhile

As the state budget is in very bad shape and there is no free education, no free travel and no meal, at most no one else has to pay the bill; instead of a scalpel.

In order to compensate the crowds who were expelled from higher education for financial reasons, he invented 2 Student Loan Institutions, which can be used besides the usual student loan, but can only be used for tuition fees. The interest rate is 6-7% lower than the normal student loan rate, only 2%, and the missing part is covered by the government (ie taxpayers).

(The Student Loan Center finances itself from the market with a state guarantee. Accordingly, the interest it pays is slightly above government bond yields, now typically around 8-9%.)

The mathematical decision makers don’t seem to be too strong in mathematics either. Let’s see how much it costs the government (taxpayers) to take out government-subsidized loans instead of saving on free higher education.

You must start repaying it at the age of 35

bank

Once the loan is taken up, you must start repaying it at the age of 35 and pay it off until your retirement, according to the official description. The interest rate subsidy should be taken as the difference between normal and new student loans, ie between 9% and 2%.

At the age of 18, our hero draws on his credit, 250 thousand forints per semester, and pays tuition for 5 years.

During the university years, the state has already paid an interest subsidy of HUF 481 thousand, ie almost a full year’s tuition fee, on the 250 thousand forints taken every six months. $ 26,250 in the first year, $ 61,250 in the second and so on. (I was counting on a semi-annual payment at the start of the school year, so it’s not like 35,000 for the first year, since half of the amount only has to be paid for half a year.)

Our hero will start to work slowly, but since he starts with a minimum wage and will not be paid much later, he will steadily repay his credit until the age of 65. (The student loan repayment installment can be 4% -12% of the salary, depending on the amount withdrawn, with a minimum wage of only 3-10 thousand HUF. Update: the law itself only makes 4% of the salary, but at least the minimum wage is 4% Preliminary news was about 4-12%, I haven’t found a trace in the law anymore, so maybe only 4% is obligatory.)

Although our hero pays 1.3 million in interest over his lifetime, and assuming the current interest rate environment, he gets four times more in bank deposits or government securities, so he doesn’t hurry to prepay his credit.

The state, which wanted to save the $ 2.5 million tuition fee, will pay an interest subsidy of $ 5.7 million over the same period, plus another $ 481,000 during university years.

This money has to be corrected for inflation

This money has to be corrected for inflation

but in the end, we find that in the case outlined, he was more inclined to introduce student loans, especially considering the cost of bureaucracy, than if he had left free higher education as it is. Of course, we were expecting a very low salary (for example, a teacher), with an engineering salary the loan will be repaid sooner as it is deducted as a percentage of the salary. At the same time, it seems that, compared to the problem caused, the state has practically nothing to gain from this construction, only distributing the same amount for 20-30 years as before.

(Because the interest rate environment may shift in many ways, both for and against the state, let’s ignore this. Just a reminder: 30-31 years ago, even the US dollar interest rate was well above 10%, and the US dollar base rate was much more Over 10% than over the last 25 years.)

I ask the question: shouldn’t one have to sit down for at least ten minutes in the big swing of the law? Because the state did not save much on this, it just complicated the system.