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Two points about Martin Lewis’s recent posts on student loans

October 13, 2012

Martin Lewis is head of the Independent Student Finance Taskforce and has put together a ‘mythbuster’ about student loans on his website. He has recently dealt with two issues which I believe require a bit more comment and detail.

The first relates to the government’s ability to change the terms on repayment; the second to whether we should replace reference to ‘loans’ and ‘debt’ with ‘contribution’. I’ll offer my thoughts on each in turn.

The ‘Mythbuster’ has changed recently to add a final question, Question 23: ‘Can the system be changed once I’ve started?’

The early days of this blog I covered a discussion between Martin and myself on whether this question needed to be addressed. I’m glad to see that this question is now treated explicitly.

The government can change the terms for existing borrowers and this is something that I have spent the last year writing about.

The ‘mythbuster’ website states:

It’s important to understand Parliament is omnicompetent. In other words, it’s completely free to make and change rules made in the past. This means there is no 100% guarantee the system will remain unchanged for the 30 years until you’re clear. It’s worth being aware this is a risk factor.

This point is further developed on a blog post entitled, ‘Once I’ve got a student loan can the government change the terms?’

 There is no way to bind a future parliament. So the best we can do, and indeed what NUS is calling for, is to ensure that this must be done via legislation (ie, parliamentary vote) rather than delegated legislation (ie, a minister allowed to make decision with authority of parliament, without  a vote).

If this were in place it would certainly slow down changes and make it more difficult, and that wouldn’t be a bad thing.

Now I agree with both these points but we need to be clear.

Changes to terms and conditions on loans do not require Parliament to implement new legislation. Such amendments are executive matters – the government of the day, in most cases the relevant Secretary of State, has been granted the powers to set these terms and conditions using secondary legislation. (This distinction depends on differentiating Parliament and its legislative function, from the government and its powers to make operational or executive decisions). 

That is, the relevant point is not that Parliament is ‘omni-competent’ as per the first quote from Lewis, but rather that power has, as he puts it in the second, been ‘delegated’.

In fact, the coalition government used its current parliamentary majority to pass the 2011 Education Act. This primary legislation removed the clauses fixing low interest rates on student loans and replaced them with clauses that gave the executive the power to set rates up to commercial, ‘market rates’ (or higher in certain circumstances): where rates are exactly set within those parameters is now an administrative matter. The same executive powers extend to the repayment threshold, the repayment rate above that threshold and the write-off of outstanding loan balances.

Clauses in the individual Student Loan Agreements provide no protection.

 “You must agree to repay your loan in line with the regulations that apply at the time the repayments are due and as they are amended. The regulations may be replaced by later regulations.” (p. 8)

The key word there being ‘regulations’ as opposed to ‘legislation’.

I do not believe this current situation is acceptable and,one way or another, borrowers need more protection. The point being, as Lewis seems to suggest, to put impediments and checks in the way of executive decisions so as to insist on  scrutiny and the possibility of contestation, whether legal or parliamentary.

Now, with regards to what we call ‘income contingent repayment loans’, I think we should stick with loans. They do have features that make them ‘like a tax’ but they are loans, and, for example, will be pursued as such if you move abroad.

I do not believe it is the terminology that is putting people off. Potential applicants and those who have turned down offers are more likely to be assessing whether a 30-year ‘contribution’ is worth it and likely have to mind one huge issue that seems to escape most commentators, including Lewis here.

Student loans are not the only debts that graduates have.

They also have bank loans, credit cards and overdrafts: the latter in particular may have far less generous repayment terms, sometimes requiring balances of thousands of pounds to be cleared within a year of graduation.

It is important to note that maintenance loans are not designed to cover annual costs of living. As the government confirmed in July:

It has been a longstanding principle of student support that maintenance grants and loans are generally paid as a contribution towards living costs rather than to cover them in their entirety.’

Student accommodation in London is now extremely expensive and on its own will almost entirely erode the maximum loan available.

An entirely rational aversion pertains to the conditions subtending full-time study.

This needs to be addressed first, before we quibble about what the scheme is called.

 

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