An impending change to student finance is stoking such fierce opposition that the TV pundit Martin Lewis, founder of MoneySavingExpert.com [pdf], has threatened to go on strike because “we could no longer be sure that what we say is true”. The government’s proposal [pdf] to freeze the level of earnings at which graduates start repaying their student loans is a “disgrace”, “an outrage” and “a breach of trust”, he says.
In the past, people with outstanding student debts paid back 9% of earnings above £15,000. However, when the coalition tripled fees to £9,000 from 2012, ministers said the repayment threshold would jump to £21,000 and, crucially, rise each year in line with earnings.
The argument that student finance would be more “progressive” rested on this higher and ever-rising threshold. All students would take on larger debts, but only higher-paid graduates would pay back more.
Now, however, the chancellor, George Osborne, has proposed fixing the £21,000 threshold until at least April 2021 – meaning, according to the Institute for Fiscal Studies, that a typical graduate could repay over £6,000 more in total. Crucially, the proposal to fix the threshold is for existing students as well as future ones. Past changes to student finance, such as the £9,000 fees, were for new students only.
Many students and some universities are furious, claiming student loans have been mis-sold. According to the National Union of Students (NUS), it is “yet another betrayal” by a government that “shows complete disdain to students and their futures”. GuildHE, which represents 29 higher education providers, claims it will undermine confidence in the loan system.
On the other side of the fence, people such as David Willetts, former universities and science minister and now executive chair of the Resolution Foundation thinktank, says a tougher threshold reflects public opinion because “slow payback is not particularly popular”. Freezing the repayment threshold was a major recommendation of an 80-page report in June 2015 on university finance produced by UniversitiesUK [pdf], which represents 132 vice-chancellors and principals.
The debate is important, not least because of the party politics involved. Linking the repayment threshold to earnings was part of the deal to encourage Liberal Democrat MPs to support tripling fees five years ago. If it disappears, they can no longer claim they softened the blow of higher fees.
Yet no one disputes the government’s legal power to make the change. When students take out a loan, they agree the terms and conditions can be altered. The issue is ethical, not legal. Is it morally unacceptable to change student loan terms retrospectively? Are politicians victimising young people? Will today’s students warn their younger siblings off university?
The Sutton Trust thinks so, saying the freeze will lead to a catalogue of problems including “failure to complete, reduced academic achievement, delay in graduating or graduation from a less prestigious university”.
Perhaps so. On the other hand, it will make the student loan scheme look more sustainable by raising the repayments. That is why the Treasury is so keen on it.
But there are three reasons for thinking the row is smoke without fire. First, loan terms have been changed retrospectively before – for example, the repayment threshold jumped from £10,000 to £15,000 for new and existing borrowers in the 2000s. So retrospective changes are not unprecedented.
Second, it is hard for the NUS and others to stoke the row because they have, until recently, argued for a graduate tax. Under such a tax the repayment terms can be altered in each budget as with other taxes. There would not even be a consultation as there has been this time.
Third, perhaps wrongly, many young people have a relaxed attitude to debt, so a tweak to repayments is unlikely to alter their behaviour.
For these reasons I doubt the vehement opposition to the government’s plan to fix the repayment threshold is wise. I do not support the policy, but I worry that the campaign against it is detracting attention from more significant changes. For example, maintenance grants are being abolished. That is less excusable because it means the poorest students will emerge from university with the largest debts. But the abolition of the grants is for new students only, so it is of much less interest to existing students. Where is the big fuss about that?
Opponents to freezing the repayment threshold are almost certainly letting down future students – they are fixing on the wrong target.
Nick Hillman is director of the Higher Education Policy Institute
