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Response to Student loan repayment threshold consultation

October 12, 2015

The government is proposing to freeze the student loan repayment threshold for five years from 2016. This will result in a retrospective price hike for current students and this year’s graduates.

The consultation closes on Wednesday. Please take the opportunity to submit your views.

I submitted mine today. It can be accessed through this link: Response to Student Loan Repayment Threshold Consultation McGettigan

Here are the Introduction and General Comments. For the full detail see the document above.

Introduction & General Points

When the new student loan iteration was introduced for 2012 new starters, the Coalition government declared that the repayment threshold would be set at £21 000 in 2016 and rise annually in line with average earnings thereafter.

The relevant regulations were never ‘made’ and the new Conservative government has now expressed its preference for freezing the threshold for five years from 2016 (Option 1).

The second Option presented would see no change for existing borrowers, but instead new starters in 2016/17 would face a freeze to the threshold for five years once their repayments first fall due.

Both options put out for consultation are misguided and regressive: the proposed changes will fall disproportionately on middle and lower earners. Moreover, when Option 2 is combined with proposed changes to student support from 2016/17, the government will have effectively created a tax on social mobility. This is at odds with its public statements from the new government.

In the case of Option 1, it is also unfair as it represents a retrospective price hike for borrowers who have already taken out loans.[1] As others such as the Sutton Trust and Money Saving Expert have also stated in response: retrospective changes to repayments terms are by definition unfair and risk undermining confidence in the student finance system given the much larger graduating debts that are now proposed.

With both Options, the Consultation document outlines future, possibly regular reviews after the freeze ends. Such a suggestion makes a nonsense of recent market reforms (whatever their merits) premised on rational consumers making judgements about quality and price.

Prospective students will now find it impossible to assess what the likely cost associated with study will be. It is basic microeconomics: the headline tuition fee is not a price and cannot signal as such given the nature of income contingent repayment loans. A graduate could currently look at likely career options and base any cost-benefit analysis on information about typical salary paths and the details of the student loan repayment scheme. That possibility is undercut by regular reviews of the repayment threshold and other administrative details of the loan scheme.[2]

Reviews and revisions displace any approximation of price and instead signal uncertain costs, thus undercutting any vestige of normal consumer practice.

Goodwill is perhaps more fundamental to a well-functioning higher education system than the fiscal headlines. The measures outlined in the Consultation risk creating a precedent for future governments to treat graduates as an indentured group from whom more cash can be extracted if and when needed with the loosest of fiscal justifications.

The two Options not only undermine confidence in English HE, but confidence in political processes as well. As the submission from Money Saving Expert states:

“The Government used Parliament as a vehicle to tell students about the raising of the threshold. Commitments of this stature create a bond of trust between the Government and students. This change is not what the Government told students, so it breaches this trust and is wrong.”

That is, it breaches trust placed in parliament and ministers.

It is not just that intentions expressed in 2010 that are being revised (§19 Consultation): the Conservative Minister then responsible for higher education stated in April this year, immediately prior to the General Election, that there would be no changes for borrowers.

I put the following question to Greg Clark via Times Higher Education’s ‘election panel’: “Will the Department for Business, Innovation and Skills have to change the terms for existing borrowers of student loans to balance its budget after 2015? Does your party commit to protecting borrowers’ conditions?”

The reply from the Minister was: “The strength of our system is that it is robustly sustainable – as the OECD has confirmed – without any changes in terms being needed.”

‘Robustly sustainable’ in April, but three months later in July we learn that the current scheme is ‘unsustainable’ without changes to the repayment threshold (§39 Consultation). But loans have not become unaffordable overnight – the major revisions to value occurred in 2013/14 when Project Hero was replaced.

We have not had an explanation of what might have changed since April, nor what level of public contribution to undergraduate study is deemed to be ‘sustainable’ or otherwise. This is not acceptable: the fiscal arguments presented in the Consultation are vague and carry little weight.

As I will outline below, the demand set out in the Consultation document in paragraph 10 is contradictory: “As we enable more students to study, we must reflect the challenge faced by the Government, to put debt on a declining path as part of fiscal consolidation plans. (my emphasis)”

More students borrowing money to finance their study and living costs can only put upwards pressure on public debt. This upwards pressure is much greater than the additional repayments that would be generated by a threshold freeze over the course of this parliament.

A tiny percentage of public debt would be repaid by those facing the freeze; the loss of goodwill in the system overall is a far greater risk than the minimal gains achieved over the course of this parliament.

In sum, government must resist the temptation to exploit graduates and instead fix terms for each cohort of borrowers. Neither Option 1 nor Option 2 as outlined in consultation document are acceptable insofar as they open the possibility of regular reviews to terms and conditions.

The tax revenue benefits of higher education are recognised by the government and are more than sufficient to secure the affordability of current support for higher education. The government should avoid policies which are likely to undermine participation, particularly when they are driven by the short-term presentational demands of national accounting and budgeting.

Given the level of graduating debt, it is now rational for individuals to avoid exposure over 35 years to repeated reviews by future governments with who knows what fiscal mandates. This cannot be good for HE and the economy.

[1] There have been amendments to loan thresholds for existing borrowers previously, but these have previously not disadvantaged borrowers, such as the change to ‘pre-2012’ loans: the relevant threshold is now uprated inline with Retail Price Index.

[2] There is insufficient detail on these proposed reviews. Will they only consider where to set the repayment threshold? Or also consider the interest rate taper, repayment period and repayment rate?

  1. LSpeight permalink

    The information given at the time was that the £21000 repayment threshold would be uprated in line with average earnings from April 2017. Whether this ever “made” it into the regulations or not is another issue. The fact is that this IS what the government promised when they tripled the tuition fees and that was part of the information that students considered when deciding whether or not to go on to HE in the UK and take out a loan. Indeed, one only needs to look at the information being put across to prospective students at the time. Go on to many university websites and it will clearly tell you that the loan threshold WILL rise in line with average earnings from April 2017. So who do you suggest we sue if the change is made retrospectively? The government for misinforming prospective students? Or the universities themselves for misadvertising on the basis that although it IS what the government clearly said, it could not be relied upon because the government sneakily decided not to incorporate that promise into the regulations? Either way, the government claimed that the threshold would rise from 2017 with average earnings, and to go back on this will mean that students were LIED to. Could one really trust ANY government who dupes people into taking out “loan agreements” where terms and conditions are changed by the lender after the borrower is committed and tied in to their side of the agreement?

  2. Well, quite. This is the issue I have been campaigning on for nearly 4 years! See this post
    (The absence of the relevant regulations was a clue to this precise problem).
    And it’s the main point in my submission to the consultation – the undermining of trust and goodwill.

    The legal issue centres on the status of the clause contained in all Student Loan Agreements. Although the wording has been changed recently, the clauses in 2012 read:

    “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.”

    I am not a lawyer but the NUS is launching a judicial review into the decision to abolish maintenance grants. You may want to check the small print on what particular universities published.

Trackbacks & Pingbacks

  1. Who gains from the grumbles? | A Higher Education Blog
  2. Sale of student loans – confusing post-2012 and pre-2012 loans | Critical Education

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