Warning! Possible student loan repayment hike ahead – Sean Wallis

How to betray a generation and attack education

Defend students: past, present and future!

Students and ex-students with post-2011 student loans — some five million young people — face an anxious wait this autumn.

In September, the Financial Times reported that the Conservative Government was planning to reduce the repayment threshold for these student loans from the current £27,321 a year (£524 a week, ‘Plan 2’) to around £23,000 (£440 a week), the current median graduate salary. The loan is written off after 30 years. 

The FT sardonically remarked that a tax raid on ‘Generation Rent’ could result in ‘Generation No Pension’.

These changes would be applied to existing loan holders, so any student who had taken up a loan for fees or living costs since 2011 would be required to pay an additional £400 or so more a year for the remainder of their 30 year period. That’s £8,000 to £12,000 per person more, plus inflation.

Note. If the very latest reports are to be believed, suggesting a threshold as low as £22,000, this would cost students around £475 a year more, or a cost of £9,500 to £14,250 per student.

Treated as a conventional loan, student loans are poor value for money, attracting interest at 3% over RPI. Interest is counted from enrollment, not graduation. This means that working class students that pay back most (if not all) of the loan over their lifetimes pay far more than wealthier students. Thus the NUS showed that a student who paid the entire loan off over 30 years would pay £83,000 for a debt of £27,000.

It is right to criticise a retrospective cut in threshold for betraying a generation of students. But many who object to this attack now did not merely fail to speak out about the scheme. Some actively promoted the entire tuition fee and loan system!

Chief among the consistent opposition to fees are the university staff’s trade union, UCU, which has always opposed tuition fees as a point of principle. In 2010, the Labour Party and the NUS joined UCU in campaigning and protesting against the scheme, enacted by the Conservative and Liberal Democrat Coalition Government in 2011. New organisations like the Campaign for the Public University and the Council for the Defence of British Universities also sprung up to oppose the market system.

When loans and fees were first promoted, students were told that they would only have to pay the loan back if they got a high-paying job. If the Conservative Government does now reduce the repayment threshold, it will change that equation over night. Every student and ex-student who took up a student loan from 2011 onwards will be made to pay. And, since the Government can take the money at source through the tax system, refusal will not be an option!

When this article was first published prior to the Autumn Budget, it was unclear whether the Conservatives would take the political gamble of announcing the change this year. But it seems increasingly likely that they will calculate that, with record numbers of UK undergraduates going to university, now is the best time to make such a change.

The righteous indignation to this proposal has even spread to Conservative MPs.

One of those speaking out now, Martin Lewis, from moneysavingexpert.com, gave financial advice promoting the ‘real cost’ of higher education that was entirely predicated on a high threshold and a low real rate of repayment, calling it a ‘no win, no fee’ system of funding higher education. But this advice did not pay sufficient attention to an important catch – the government of the day always had the right to change the terms of the loan retrospectively.

The hard truth is that the entire high-fee-plus-student-loan system was always unsustainable, as Andrew McGettigan explained in the HE Convention’s Alternative White Paper, published in 2016. That is because the ‘RAB’ charge – the expected amount of the loan left unpaid at its end – is around 45%. In other words, under the current system, about half of every student loan will never be paid back.

The student debt mountain by end of 2021 had reached £160bn. Source: Student Loan Statistics, House of Commons.
The student debt mountain by end of 2021 had reached £160bn. Source: Student Loan Statistics, House of Commons..

The loan is, in effect, ‘paid forward’ and subsidised by future taxpayers. So not only is the loan mountain growing, but even when graduates start earning enough to really contribute to paying it off, it will still grow at a rate of more than £10bn a year in current money. Sooner or later the Treasury will be forced to bring this debt under control.

But who can afford to pay off the debt?

The UK is a low-pay economy, even for highly skilled workers. It is not just arts graduates who can expect to be low-paid, although, partly in anticipation to Government cuts, some universities (such as Roehampton, Chester, South Bank, Worcester and Goldsmiths) have started to cut arts and humanities courses and staff.

Science workers are also not well paid. Thus the Conservatives introduced a rule into Tier 2 (Skilled Worker) visas that set a minimum earnings requirement for international recruitment. They were then compelled to create exceptions for PhD holders to allow scientists, medics and many others to stay in the UK (or be recruited from overseas). The minimum earnings requirement is £20,480 for ‘shortage occupations’ or those with a PhD, or £25,600 in general. Compare these figures to the current repayment threshold and you can see the problem. So much for ‘joined up government’.

When the financier David Augar was tasked by the Conservatives with investigating how to bring costs under control he had a number of options. These included

  1. Reducing the up-front tuition fee from £9,250,
  2. Capping the loan amount, limiting what students could borrow,
  3. Increasing the interest rate payable, and
  4. Reducing the income threshold above which students must pay it back.

Option 1, to reduce the tuition fee, ran straight into opposition from Vice Chancellors. The same VCs who lobbied for tuition fees (from £1,000, to £3,000 to £9,000) insisted that they had invested in education and that their costs had risen. The Provost of UCL, for example, was quoted in the Guardian saying that no undergraduate course was covered by this fee.

The truth is that universities’ costs have grown as a result of competition and capital spending. They have planned to rely on £9,000+ fees for decades, and they have made long-term investments in buildings and campuses. Reducing per-student funding from government cannot be done overnight. Faced with a cut in tuition fees, English universities would raise income from students through other ways. These would likely include lobbying to be permitted to demand additional charges or local ‘top up’ fees, which would mean that the result would be similar to Option 2 (capping the amount a student could borrow). Some universities might be able to increase student rents, but the most likely result would be that universities would prioritise international recruitment. The latter strategy is precisely what Scottish Universities have done since 2011. Rampant competition for UK students is thereby escalated into international recruitment.

The other problem with Options 1 and 2 is that they don’t address the current debt mountain of some £180bn and counting that the Treasury is sitting on. They might only reduce the growth of the debt mountain going forward. In order to reduce the accumulated debt, the Treasury would have to increase repayments from students. This means Options 3 and 4.

They could increase the interest rate, but it is already very high. And it does not increase the number of people who will pay their loans back. The only way they can do that is to reduce the threshold.

The FT estimates that reducing the threshold to £23,000 will raise £2bn a year (possibly ~£2.5bn if the threshold is dropped to £22,000). But this will still mean that the debt mountain continues to grow by some £7-8bn a year! 

Of course, one way that figure may fall further is if fewer students go to university, or fewer students take up the loan in the first place. The growth in Higher Education over the last decade fueled by government-backed tuition fees can go into reverse.

The Conservative justification for reducing the threshold is ‘fairness’. Why should tax payers (workers in the main) who did not attend university pick up this huge debt? The first answer must be that, leaving aside the fact that the entire debt has been created by the Government in the first place, the beneficiaries of an independently-minded, highly trained and skilled workforce are not merely the students themselves.

When you go to the dentist, you benefit from dental school education! The main beneficiaries of mass higher education are the employers who can cherry-pick from the graduate market.  The tuition fee scheme passes on the cost of higher education onto workers, inflates this cost by an elaborate loans scheme, and then invites the working population to argue between ‘tax payers’ and ‘students’. We have to oppose this framing. 

What we can do

If Rishi Sunak announces a retrospective cut in the repayment threshold, there must be an organised response from the whole Higher Education sector.

We cannot leave it to Vice Chancellors and Conservative MPs to object. The stakes are too high for everyone, and they have a long record of campaigning in their self-interest.

Dropping the threshold will directly affect existing students, but it will also be a huge attack on ex-undergraduate students. Within the university sector, these are our younger colleagues – existing PhD students, postdoctoral research staff, junior lecturers, technical and support staff.

It will also impact on young skilled workers everywhere across the UK.

And it will affect future students and their academic choices. In this respect, the proposed change would be a drastic act of social engineering by a Conservative Government that claims to believe in market forces. Reducing the threshold will make future student choices more instrumental. It will force less wealthy students to chase courses with high graduate income expectations. The problem for individual students is that by the time they graduate, a market shortage in, say, biochemists or computer programmers can be filled.

The knock-on effect for the sector is also predictable, with a likely intensification of competition for home and international students, more course closures and redundancies, and more pressure on universities that over-extended their finances.

This is no way to run a knowledge economy.

We are left with a simple proposition. Education is the gift each generation bequeaths to the next. Education is a social good, not a private one. Knowledge is not a commodity that should be, or need be, rationed and artificially kept in short supply.

It is education, and not a debt for life, that we should bestow!

These attacks on students past, present and future, reveal the fundamental unsustainability of the current market system, begun a decade ago. It is time to demand a far more equitable, accountable and coherent Higher Education sector, one that can partner with Secondary and Further Education to rebuild society. We need to revive the idea of a National Education Service to parallel the NHS.

With UCU balloting over attacks on staff pay and pensions, and students under attack, there has never been a more important time to unite to defend Higher Education, and its staff and students.

See also

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.