proposal for income tax relief for graduate entry medicine loan products submission for budget 2015
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Proposal for Income Tax Relief for Graduate Entry Medicine Loan Products Submission for Budget 2015
July 2014
CONTACT INFORMATION:
Brian Doyle | [email protected] Fred English | [email protected] Paddy Hillery | [email protected]
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Table of Contents
Main Issues ........................................................................................................................ 3 Debt crisis for current Graduate Entry Medicine (GEM) students/graduates ........................................ 3 Inequality of access to Graduate Entry Medicine Programmes ..................................................................... 3 Graduate Case Studies ....................................................................................................... 4 Case Study 1 ......................................................................................................................................................................... 4 Case Study 2 ......................................................................................................................................................................... 5 Case Study 3 ......................................................................................................................................................................... 5 Case Study 4 ......................................................................................................................................................................... 6 Outline of Proposed Relief ................................................................................................. 7 Marginal Rate Relief .......................................................................................................................................................... 7
Benefit of Relief to Graduate with Loan Product ................................................................ 8
Benefit to Irish Health System ............................................................................................ 8
Background Information .................................................................................................... 9 Entry routes to undergraduate medical education ............................................................................................. 9 Direct Entry Medicine (DEM) ........................................................................................................................................ 9 Graduate Entry Medicine (GEM) .................................................................................................................................. 9 Non-‐EU Medical Students ............................................................................................................................................ 10
Funding of Medical Education in Ireland .............................................................................................................. 10 Tuition Fees paid by EU medical students2 .......................................................................................................... 10 State contribution through HEA grant per EU student2 ................................................................................ 10 Comparative cost to state of medical education2 .............................................................................................. 11
References ....................................................................................................................... 12
Appendix A – Graduate Entry Medicine Loan Product Example ........................................ 13
Appendix B -‐ Workings ..................................................................................................... 14 €100,000 GEM LOAN ..................................................................................................................................................... 14 €75,000 GEM LOAN ........................................................................................................................................................ 15 €50,000 GEM LOAN ........................................................................................................................................................ 16 Cost of scheme ................................................................................................................................................................... 17
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Main Issues
Debt crisis for current Graduate Entry Medicine (GEM) students/graduates • 1/3 of EU students graduating from Irish medical school take Graduate Entry
Route.
• Over 60% take out loans of €60,000-‐€100,000 to cover tuition and living costs.1
• Tuition fees are around €60,000 for four years of the programme.2
• Graduates from GEM programmes are struggling to meet monthly repayments of up to €1,178 on loans taken out to fund their medical degree.1
• Average loan repayments are too high to be covered by starting NCHD salary of
€2,114 monthly after tax, when cost of living is taken into consideration leaving many graduates in severe financial distress.
Intern with €100,000 loan Weekly Monthly Annual
Pre-‐tax salary €596 €2,583 €31,000 After tax salary €488 €2,114 €25,371 Loan repayments -‐€272 -‐€1,178 -‐€14,138 Net post loan €216 €936 €11,233
Average Dublin Rent -‐€150 -‐€600 -‐€7,200 Left for bills , food+ living €66 €336 €4,033
• Many GEM graduates opting to head overseas for better salaries and working
conditions.
• Long term ability of GEM graduates to secure mortgage or start a family etc. are inhibited by large personal debt on graduation.
Inequality of access to Graduate Entry Medicine Programmes • Inability of current GEM programme graduates to meet repayments has resulted in
banks reducing maximum loan facility for prospective GEM students from €100,000 to €60,000, excluding many families who cannot afford to cover living expenses directly.
• SUSI grant not available to students on Graduate Entry Medicine programmes.
• Access to more affordable finance must be prioritised in order to improve equality of access for students from lower socio-‐economic means.
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Graduate Case Studies The following are real case studies of current students and recent graduates of GEM programmes:
Case Study 1 Dr. F.E. 29yrs Male -‐ Declined Basic Specialist Training (BST) in favour of starting a business and locum work “In 2007 I left a job in the fire service to try become a doctor. I had completed a diploma prior but the requirements for the GEM programme included an honours degree. I undertook a degree in Physiology in 2007 and quickly took to clinical research. My research profile began to focus on pregnancy specific diseases, momentum built, and I quickly became involved in, and later went on to lead, award winning projects in Ireland, Canada, Japan and the UK. I entered the GEM programme in 2009. I was the first in my family to enter University. With little financial support available I needed to borrow €100k over four years. Most of this went on paying tuition fees. By the time I completed the GEM programme my heart was set on a career in Obstetrics & Gynaecology -‐ the speciality in which I had become well known to researchers around the world. In my Intern year my salary was approx. €20k after tax. Loan repayments were €800 per month. Things were tight. My final three-‐month placement in Intern Year was in Kilkenny General Hospital. Paying rent in two places at the same time was not an option , nor was terminating the lease I share in Dublin. So, for three months I worked in the hospital approximately 55hrs per week and took a part time job on a farm, four evenings per week, where I worked for room and board. In January 2014 I applied to the Specialist Training Scheme in Obstetrics & Gynaecology and was accepted gaining first preference of placements. I went to the bank to inform them of my salary and was told that the salary on this scheme was not sufficient to repay my loan. I was forced into an impossible situation -‐ to 'stay and pay' or leave to follow my chosen career path somewhere else. I chose the former. In May 2014 I turned down my place on the Specialist Training Scheme in favour of starting my own business. I now own my own business, continue to work in research and other areas while working part time as a locum doctor earning multiples of what I would be earning on a training scheme. While I am not advancing towards consultancy I am paying off my loan at a faster rate and still living in Ireland. The impact on the system is obvious. I left a training job leaving a space vacant and then went on to become the most resource intense type of doctor there is -‐ the dreaded locum. More than wanting to be 'A Doctor' I always wanted to be an 'Irish Doctor’ looking after Irish people in what I think is the best country in the world. I value a sense of place and what that means to those we care for. My plans for the future are totally dependant on the impact my loan repayments on my quality of life and ability to make choices. Where that future will be remains uncertain.”
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Case Study 2 Dr. R.B. 29yrs Male -‐ Married -‐ First year Senior House Officer on Basic Specialist Training Scheme. “My plan is to eventually become a geriatrician. How and where I get to this point is currently up for debate -‐ mainly for financial reason. I borrowed €85,000 from 2009 to 2013 to pay my fees and rent while my parents contributed toward my living expenses while a student. I pay back €800 a month. By the time I have paid back the loan, in around 10 years, I will have paid back approx. €115,000. I earn less than €2500 per month, as an intern I calculated my pay to be less than €11 per hour after tax. Monthly expenditure includes rent €600 and loan repayments of €800. Being a doctor is expensive, compulsory professional exams can cost up to €900 each and Medical Council Registration is static at €700 per year. Allowances such as “Living Out” have been taken away -‐ this is particularly difficult for given we frequently have to move from our base for 3 -‐ 6 months at a time and either commute or rent a second house. I am married, cannot get a mortgage, have zero savings, as there is nothing left at the end of the month. My wife and I live well within our means. We cannot afford to have a child right now. My wife is also a doctor in a similar situation to myself. I am seriously considering my options at the moment. I am currently completing international exams to keep my options open, with a view to moving to the United Stated where training time is shorter and remuneration better reflects our skills, responsibility and training. I have very little interest in leaving Ireland but under the current circumstances it is hard to see any real future for me here, certainly in the short to medium term. Another viable option is to leave my poorly paid training post and begin locum work thereby further exploiting the desperate situation in our health service. Here, I would be doing the same job for at least 4 times the rates I currently earn. These jobs are abundant in the current climate with the massive emigration of my NCHD colleagues. I'm going to give it 6 months and re-‐evaluate at this point.”
Case Study 3 Dr. N.A. 27 Female, First Year -‐ Basic Specialist Trainee “I am a 27 year old GEM graduate in debt to the tune of over €105,000. I commenced my studies in August 2009. When I accepted my offer to study I was aware of a loan that would pay for my fees and provide extra support for living allowances and various costs of my programme. At the time I didn’t give much thought to repayments, which I admit was naive. However in 2009 when I signed up to medicine, it was a totally different ball game. I was being told various stories about interns earning in excess of €80,000 in their first year. I don’t think it was not
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unreasonable of me to assume I would be able to pay off a large sum of my loan in the first year and take away a lot of the stress of repayments, interest etc. It only became apparent to me at the start of my intern year, when I started to get paid, how different my reality was to my expectations. My bank manager explained that they had wished me to pay €1500 per month -‐ my salary was just under €2000 a month. Obviously this repayment plan was unrealistic. We agreed that I would only repay interest for the first year. This amounted to over 420 euro a month, about a quarter of my paycheck. Throughout the year I was living pay-‐check to pay-‐check, frequently having no money in my account for a few days just waiting to get paid. This without even having begun to pay back any of the loan. At this point I am just avoiding accumulating any more debt.”
Case Study 4 Ms. S.A.-‐ Final Year Student -‐ Graduate Entry Programme at an NUI. “At 23, with a first class honours degree in Biomedical Science, I simply wasn’t committed to a life in the laboratory. My dream had always been medicine. And so I decided not to settle. In order to achieve this goal, commitments had to be made. The most overwhelming commitment was the financial one. The sad juxtaposition was this; I had finally achieved a place on the graduate entry course in medicine, but in order to live out this dream, I needed to enter a daunting marriage with the bank. A marriage that would require at least ten, maybe fifteen years of compromise and hard work. A marriage that will limit my travel opportunities, my plans for starting a family and one which will always over shadow any spontaneity in my life in the years to come. Don’t get me wrong; I am thankful every day for the opportunity to live out my ideal career. But the price is high, both fiscally and emotionally. In ten months time, aged 27, at my much-‐awaited graduation, some will celebrate that the hardest part is mostly over. For those of us in this worrisome financial wedlock, the slog will only be getting started. I have borrowed €100,000 which looks a little more like €140,000 in total repayments when interest is considered. From what I’ve heard, the repayments, not to mention the training conditions, make life very hard. I’ve completed examinations for entry to the United States and am strongly considering leaving before ever getting started here.”
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Outline of Proposed Relief • We propose the introduction of tax relief on repayments of approved loan products
for students on Graduate Entry Medicine programmes in the state.
• Relief would be available at an individual’s marginal tax rate for any principal and interest paid on eligible loans.
• Key features of such loan products are:
o Maximum lending available is €60,000 -‐ €100,000. o Drawdowns phased over the length of the course of study. o No capital or interest repayments are required until the completion of the
course of study. o During the drawdown period interest accrues at preferential rates (currently
approx. 4%) and is rolled up into borrowings. o The repayment period is 10 years, payable monthly and once it begins the
interest rate increases to the banks normal variable personal lending rate (Currently approx. 7.33%).
o Approximately 61% of students are believed to participate with median borrowings in the region of EUR 80,000.
• The proposed legislation would enable the Minister for Finance (or the Revenue
Commissioners) to specify by order eligible lending products for the purpose of the relief. Relief would only be available on those loans.
Marginal Rate Relief Relief would be permitted as a deduction against an individual’s taxable income at their marginal rate rather than as a standard rate tax credit.
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Benefit of Relief to Graduate with Loan Product The income tax relief as proposed would reduce loan repayments for GEM graduates by 37-‐38%. The follow table illustrates savings based on varying loan amounts:
Annual Repayments Monthly Repayments
Loan Amount Current With relief % Current With relief %
€100,000 €14,138 €8,888 -‐37% €1,178 €741 -‐37% €75,000 €10,603 €6,592 -‐38% €884 €549 -‐38% €50,000 €7,069 €4,358 -‐38% €589 €363 -‐38%
Benefit to Irish Health System • Relief scheme would provide an incentive for Irish graduates to remain working in
Irish Health system as income tax relief could only be claimed on income taxed in the state.
• Relief would improve availability of finance to all students and improve the socio-‐economic mix in future Graduate Entry Medicine classes.
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Background Information
Entry routes to undergraduate medical education Following implementation of recommendations from the Fottrell Report (2006)3, there are now two entry routes into undergraduate medical education in Ireland – Direct Entry Medicine (DEM) and Graduate Entry Medicine (GEM). EU and non-‐EU students are admitted to both of these programmes.
Total Medical School Places for EU Students in each year
School DEM GEM TOTAL
NUI Galway 120 NA 120
UCC 110 35 145
UCD 90 77 167
UL NA 90 90
RCSI 39 30 69
TCD 123 NA 123
Places per year 482 67.5% 232 32.5% 714
Direct Entry Medicine (DEM) There are six medical schools in the Republic of Ireland, each offering medical education for school leavers through Direct Entry Medicine (DEM) programmes. Places for EU students are allocated through the Central Applications Office (CAO) based on leaving certificate points in combination with points from the Health Professional Admissions Test (HPAT). There are a total of 482 places available on DEM programmes for EU students in each year.
Graduate Entry Medicine (GEM) Four of the six Irish medical schools offer Graduate Entry Medicine (GEM) programmes. Points achieved in the Graduate Australian Medical Schools Admissions Test (GAMSAT) are used to allocate places through the Central Applications Office (CAO). There are a total of 232 EU places available on GEM programmes for EU students in each year. Tuition fees for Graduate Entry Medicine Programmes are between €14,000 and €16,000 for each year of the four year programme, in addition to living expenses. GEM students do not qualify for the SUSI grant and must fund their tuition and living expenses. GEM students face significant difficulties in meeting their loan repayment obligations upon graduation with many facing financial distress.
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Non-‐EU Medical Students In addition to EU places, Irish medical schools all offer places on both DEM and GEM programmes to non-‐EU students using a variety of avenues to recruit internationally. Non-‐EU international students make a significant financial contribution towards the running cost of Irish medical school paying higher tuition fees than their EU counterparts.
Funding of Medical Education in Ireland The cost of providing medical education is met through a combination of student tuition fees, state funding and income from the education of international students.
Tuition Fees paid by EU medical students2
Direct Entry Studenta (5 year programme)
Graduate Entry Studentb (4 year programme)
2010/11 Year 1 €2,750 -‐ -‐ 2011/12 Year 2 €2,750 Year 1 €13,580 1012/13 Year 3 €2,750 Year 2 €14,580 2013/14 Year 4 €2,750 Year 3 €14,580 2014/15 Year 5 €2,750 Year 4 €14,330
Total cost €13,750 Total €57,070
aHSE grant to university per medical student 2014/15. bTuition fees vary per institution. Figures used are for GEM Programme at University College Cork.
State contribution through HEA grant per EU student2
Direct Entry Student* (5 year programme)
Graduate Entry Student* (4 year programme)
2010-‐11 Year 1 €4,515 -‐ -‐ 2011-‐12 Year 2 €5,900 Year 1 €11,000 1012-‐13 Year 3 €5,900 Year 2 €10,000 2013-‐14 Year 4 €5,810 Year 3 €10,000 2014-‐15 Year 5 €5,810 Year 4 €10,000
Total cost €27,935 Total €41,000
*Based on medical student graduating in 2015.
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Comparative cost to state of medical education2
Engineering Science Nursing Law Annual HEA Grant per student €4,515 €4,515 €4,356 €2,820 Length of Course 4 4 4 4 Degree cost to state €18,060 €18,060 €17,424 €11,280
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References 1. Conor Haugh, Brian Doyle, Siun O'Flynn. Debt Crisis Ahead for Irish Medical
Students. Irish medical journal. 2014;107(6):185-‐6.
2. Fees Office. Undergraduate Fees Schedule 2014-‐15. University College Cork, 2014.
3. Fottrell PP. Medical Education in Ireland: A New Direction. Report of the Working Group on Undergraduate Medical Education and Training (the "Fottrell Report"). Department of Health, 2006.
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Appendix A – Graduate Entry Medicine Loan Product Example
Appendix B -‐ Workings
€100,000 GEM LOAN 100k LOAN Principal Loan Interest Total
Relief Top Rate
Value @ 41%
Relief at Standard Value @ 20% Total Tax Relief
Interest =
7.33%
Year 1 €7,041 €7,097 €14,138 €0 €0 €14,138 €2,828 €2,828 Year 2 €7,575 €6,563 €14,138 €5,200 €2,132 €8,938 €1,788 €3,920 Year 3 €8,150 €5,988 €14,138 €11,200 €4,592 €2,938 €588 €5,180 Year 4 €8,767 €5,371 €14,138 €14,138 €5,797 €0 €0 €5,797 Year 5 €9,432 €4,706 €14,138 €14,138 €5,797 €0 €0 €5,797 Year 6 €10,147 €3,991 €14,138 €14,138 €5,797 €0 €0 €5,797 Year 7 €10,916 €3,222 €14,138 €14,138 €5,797 €0 €0 €5,797 Year 8 €11,744 €2,394 €14,138 €14,138 €5,797 €0 €0 €5,797 Year 9 €12,634 €1,504 €14,138 €14,138 €5,797 €0 €0 €5,797 Year 10 €13,592 €546 €14,138 €14,138 €5,797 €0 €0 €5,797
€100,000 €41,380 €141,380
Saving to GEM graduate over 10 years = €52,503
Average annual relief = €5,250
Repayment with relief -%
Pre-Tax Income
SRCOP - Single
Income At top rate
Year 1 €11,310 20%
Year 1 €31,000 €32,800 €0
Year 2 €10,218 28%
Year 2 €38,000 €32,800 €5,200
Year 3 €8,958 37%
Year 3 €44,000 €32,800 €11,200
Year 4 €8,341 41%
Year 4 €50,000 €32,800 €17,200
Year 5 €8,341 41%
Year 5 €55,000 €32,800 €22,200
Year 6 €8,341 41%
Year 6 €60,000 €32,800 €27,200
Year 7 €8,341 41%
Year 7 €63,000 €32,800 €30,200
Year 8 €8,341 41%
Year 8 €66,000 €32,800 €33,200
Year 9 €8,341 41%
Year 9 €70,000 €32,800 €37,200
Year 10 €8,341 41%
Year 10 €75,000 €32,800 €42,200
Average annual = €8,888 37% Average monthly = €740.64 37%
€75,000 GEM LOAN 75k
LOAN Principal Loan Interest Total Relief Top
Rate Value @
41% Relief at
Standard Value @ 20% Total Tax Relief
Interest
7.33%
Year 1 €5,281 €5,322 €10,603 €0 €0 €10,603 €2,121 €2,121 Year 2 €5,681 €4,922 €10,603 €5,200 €2,132 €5,403 €1,081 €3,213 Year 3 €6,112 €4,491 €10,603 €10,603 €4,347 €0 €0 €4,347 Year 4 €6,576 €4,028 €10,603 €10,603 €4,347 €0 €0 €4,347 Year 5 €7,074 €3,529 €10,603 €10,603 €4,347 €0 €0 €4,347 Year 6 €7,610 €2,993 €10,603 €10,603 €4,347 €0 €0 €4,347 Year 7 €8,187 €2,416 €10,603 €10,603 €4,347 €0 €0 €4,347 Year 8 €8,808 €1,795 €10,603 €10,603 €4,347 €0 €0 €4,347 Year 9 €9,476 €1,128 €10,603 €10,603 €4,347 €0 €0 €4,347
Year 10 €10,194 €409 €10,603 €10,603 €4,347 €0 €0 €4,347
€75,000 €31,035 €106,035
Saving to GEM graduate over 10 years= €40,113
Average annual relief €4,011
Repayment with relief
-% reduction
Pre-Tax Income SRCOP - Single
Income At top rate
Year 1 €8,483 20%
Year 1 €31,000 €32,800 €0
Year 2 €7,391 30%
Year 2 €38,000 €32,800 €5,200
Year 3 €6,256 41%
Year 3 €44,000 €32,800 €11,200
Year 4 €6,256 41%
Year 4 €50,000 €32,800 €17,200
Year 5 €6,256 41%
Year 5 €55,000 €32,800 €22,200
Year 6 €6,256 41%
Year 6 €60,000 €32,800 €27,200
Year 7 €6,256 41%
Year 7 €63,000 €32,800 €30,200
Year 8 €6,256 41%
Year 8 €66,000 €32,800 €33,200
Year 9 €6,256 41%
Year 9 €70,000 €32,800 €37,200
Year 10 €6,256 41%
Year 10 €75,000 €32,800 €42,200
Average annual = €6,592 38% Average monthly = €549.35 38%
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€50,000 GEM LOAN 50k
LOAN Principal Loan Interest Total Relief Top
Rate Value @
41% Relief at
Standard Value @ 20% Total Tax Relief
Interest
7.33%
Year 1 €3,521 €3,548 €7,069 €0 €0 €7,069 €1,414 €1,414 Year 2 €3,788 €3,281 €7,069 €5,200 €2,132 €1,869 €374 €2,506 Year 3 €4,075 €2,994 €7,069 €7,069 €2,898 €0 €0 €2,898 Year 4 €4,384 €2,685 €7,069 €7,069 €2,898 €0 €0 €2,898 Year 5 €4,716 €2,353 €7,069 €7,069 €2,898 €0 €0 €2,898 Year 6 €5,074 €1,995 €7,069 €7,069 €2,898 €0 €0 €2,898 Year 7 €5,458 €1,611 €7,069 €7,069 €2,898 €0 €0 €2,898 Year 8 €5,872 €1,197 €7,069 €7,069 €2,898 €0 €0 €2,898 Year 9 €6,317 €752 €7,069 €7,069 €2,898 €0 €0 €2,898
Year 10 €6,796 €273 €7,069 €7,069 €2,898 €0 €0 €2,898
€50,000 €20,690 €70,690
Saving to GEM graduate over 10 years= €27,106
Average annual relief €2,711
Repayment with relief
-% reduction
Pre-Tax Income SRCOP - Single
Income At top rate
Year 1 €5,655 20%
Year 1 €31,000 €32,800 €0
Year 2 €4,563 28%
Year 2 €38,000 €32,800 €5,200
Year 3 €4,171 37%
Year 3 €44,000 €32,800 €11,200
Year 4 €4,171 41%
Year 4 €50,000 €32,800 €17,200
Year 5 €4,171 41%
Year 5 €55,000 €32,800 €22,200
Year 6 €4,171 41%
Year 6 €60,000 €32,800 €27,200
Year 7 €4,171 41%
Year 7 €63,000 €32,800 €30,200
Year 8 €4,171 41%
Year 8 €66,000 €32,800 €33,200
Year 9 €4,171 41%
Year 9 €70,000 €32,800 €37,200
Year 10 €4,171 41%
Year 10 €75,000 €32,800 €42,200
Average annual = €4,358 38% Average monthly = €363.20 38%
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Cost of scheme Annual number of GEM graduates: 232
Estimated % with GEM loan: 61% Estimated no of GEMs graduating with loan: 142 Average repayment schedule 10 years
ESTIMATES 2015 2016 2017 2018 2019 2020 Average tax relief per student per year €4,011 €4,011 €4,011 €4,011 €4,011 €4,011 No. of graduating classes 3 4 5 6 7 8 No. of graduates availing of scheme 425 566 708 849 991 1132 Estimated taxation foregone to exchequer €1,703,029 €2,270,705 €2,838,381 €3,406,057 €3,973,733 €4,541,409
ESTIMATES 2021 2022 2023 2024 2025 Average tax relief per student per year €4,011 €4,011 €4,011 €4,011 €4,011 No. of graduating classes 9 10 10 10 10 No. of graduates availing of scheme 1274 1415 1415 1415 1415 Estimated taxation foregone to exchequer €5,109,086 €5,676,762 €5,676,762 €5,676,762 €5,676,762
The above calculations are based on an average loan amount of €75,000 per graduate at 7.33% interest with repayments over 10 years.