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Student loans – campaign

Later this month (March), I will finally pay off the student loans I took out in the 1990s.  These were maintenance loans: I graduated before the introduction of what were called ‘topup’ fees (at first £1 000 per year), and amounted to just under £5 000 when I finished.  It has taken me nearly 14 years to repay that debt.

I enjoyed the protection of the Consumer Credit Act, a low interest rate set in statute, and a generous repayment threshold.  In 2009/10, my interest rate was -0.4% – that’s right, I received credit on my outstanding balance.  This is because interest was calculated at RPI minus 1 percentage point and RPI had been 0.6% in September 2008. 

In 2001, the repayment threshold was £20 696, by 2005 it was £22 764.  I was thus able to defer repayment.  Once the threshold was crossed, 60 equal monthly repayments were made to clear the outstanding balance.  Repayments were tied directly to the amount borrowed.

The advantages and protections of these pre-98 loans persisted even after the balances were sold to the company that became Thesis Servicing.

Since 1998, we have seen many changes in the loan scheme – all affecting new cohorts.  The most obvious is the introduction of income contingent repayment loans which means that the monthly repayments are relative to income, rather than initial amount borrowed.  The original debt taken can limit the total amount repaid, though it is more likely for most that the debt will be written off (after 25 years after graduation for those with recent loans, 30 years for those taking out the new loans in 2012/13).

What concerns me is not simply the complexity of income contingent repayment loans, but that many of the protections I enjoyed have been removed.

The new loans are not covered by the Consumer Credit Act and interest rates can be set at the discretion of the relevant Secretary of State using secondary instruments, as can the other details of the scheme, such as the repayment threshold (and percentage determining level of repayment).  Although the current government has stated its intention to set real rates of interest (ie above inflation) it has given itself powers to set rates much higher than that. 

The 2011 Education Act, which received Royal Assent last November, Education Act now allows governments to set up to market rates of interest on student loans using statutory instruments (rates must be “lower than those prevailing on the market, or no higher than those prevailing on the market, where the other terms on which such loans are provided are more favourable to borrowers than those prevailing on the market.”)

Having recognised this lack of statutory and legal protection, what do the terms and conditions of the student loan agreements say?

The clause that currently appears in the 2012/13 “STUDENT LOANS – A GUIDE TO TERMS AND CONDITIONS” allows future administrations great leeway to change terms and conditions. 

 “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)

It is clear that the loans are not merely income contingent, but future-policy contingent. 

With such long lifetimes, much higher debt and higher interest rates, this kind of contingency is unacceptable.

Borrowers should not face such a potential liability.  Especially when we recall that student loans can be sold they can be sold to third parties without consultation and without consent (2008 Sale of Student Loans Act).

I believe that individuals should sign up to loan agreements where the terms and conditions are fixed for the lifetime of the loans (interest rate taper, repayment threshold and percentage of income repaid above the threshold).  Future governments may be required to change the terms of the scheme for new cohorts, but those who have taken out loans already should not face the risk of a future government extracting additional levels of repayment.

Who can say what the economy will look like in 15-20 years’ time?  With such high levels of government, corporate and household debt in the UK, it is difficult to be confident. Might we in future face problems similar to that of Italy and Greece?  If so, we should avoid having a class of citizens, graduates, from whom a technocratic administration can tap extra cash.

Whether such a scenario is likely or unlikely is beside the point – the possibility should be excluded as far as practicable.  It would be too easy for a future government, faced with pressing financial difficulties, to return to this group of citizens and extract more repayments from them. Primary legislation would not be needed.

Providing additional protection is the right and proper approach to a generation who now face much higher fees and much higher loan debts.

If you agree, please sign the e-petition here, Set fixed repayment terms in student loan agreements.

Update – July 2012

Please see the recent news from New Zealand where existing borrowers had the repayment rate raised from 10% to 12% above the threshold.

  1. David G permalink

    I believe this should be challenged under the Unfair Contract Terms Act (i.e. under EU law) as fundamentally unfair – the benefits are fixed up front but the terms and costs are variable and can be subsequently changed on a political or corporate whim with no opt-outs and no alternatives. Unbelievable!

    • Thanks for the comment. Any legal advice relating to this matter would be much appreciated. Note the blog post from earlier this month indicating what has just happened in New Zealand.

      • David G permalink

        I’m not a lawyer but I do remember reading a large document on the Unfair Contract Terms Act I dug out when a letting agent gave me some grief. Even a document on another topic (e.g. letting) should give you an idea on how the Act could help here.

        Incorporating EU law the Act automatically takes precedence over UK law:) However, it might be questionable whether students are seen as ‘consumers’ and the government / student loans company as a ‘business’ – would probably need to check the original EC Directive
        93/13/EEC or get advice on this. IF it does apply then the Office of Fair Trading states:

        “3 Test of fairness
        3.1 The Regulations apply a test of fairness to most standard terms (terms that have not
        been individually negotiated) in contracts used by businesses with consumers. Unfair
        terms are not enforceable against the consumer. The test does not apply to terms
        that set the price or describe the main subject matter of the contract (usually referred
        to as ‘core terms’) provided they are in plain and intelligible language…
        3.2 Regulation 5(1) provides that a standard term is unfair if, ‘contrary to the requirement
        of good faith, it causes a significant imbalance in the parties’ rights and obligations
        arising under the contract, to the detriment of the consumer’.
        3.3 The requirement of ‘good faith’ embodies a general principle of fair and open
        dealing. It means not only that terms should not be used in bad faith, but also that
        they should be drawn up in a way that respects consumers’ legitimate interests.
        Therefore, in assessing fairness, we take note of how a term could be used. A term is
        open to challenge if it is drafted so widely that it could be used in a way that harms
        consumers. Suppliers may protest that a particular term is not used unfairly in
        practice. However, such protests will not be enough to persuade us that the term
        should not be challenged under the Regulations. Claims like this usually indicate that
        the supplier could redraft the term more precisely both to reflect its intentions and to
        achieve fairness.
        3.4 Transparency is also fundamental to fairness. The consumer should have the chance
        to read all the terms before agreeing to the contract.”

        So I think it is worth checking out (maybe by the NUS investigating this and even challenging the **** in the courts).

        I have 3 sons who will be affected by this, and I’d like to take a second degree myself but do not qualify to repay a loan! So good luck:)

  2. LSpeight permalink

    The government is bamboozling the general public by calling these “loans”. With a loan, you know exactly what you are taking on and what the terms are. With this style of loan, the binding contract is one way only….the government can change their side of the bargain. There is currently a consultation on whether to freeze the repayment threshold at £21,000 for five years. When the 2012 loans came out, the government stated that the threshold would be uprated in line with average earnings from 2017. Clearly, the so called “terms” of the loan are not actually worth the paper they are written on and with tuition fees now being allowed at £9000 per year, the size of the debt and the fact that the government feel that they can change the repayment terms whenever they like is very worrisome indeed.

  3. caronstace permalink

    I am so depressed by the state of my New Zealand Student Loan. I have been living abroad for 11 years, and paying it back, but only keeping up with interest. It seems so unfair considering I signed up for an interest free loan 20 years ago.

  4. Frankly, I’d put up with it …… if there were a job at the end. But for 60% there isn’t.

Trackbacks & Pingbacks

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