While the Chancellor talked about students in his Autumn Statement a few weeks ago, he chose to hide in the small print – or perhaps wasn’t brave enough to speak about – a hike in the student loan repayments for all who’ve started since 2012. This retrospective change is a disgrace. No commercial company would be allowed to do it – the Government shouldn’t be allowed to either.
Quick Briefing: What the Government has changed…
First time undergraduates in England who started university in Sept 2012 and beyond repay student loans at a rate of 9% of everything earned above £21,000 a year after they leave (full explainer in Student Loans Mythbusting). In 2010 when it launched the new system, the Government promised that from April 2017 this £21,000 threshold would rise annually with average earnings.
It has now reversed that, freezing the threshold until at least 2021. So instead of the threshold going up each year, it’ll be stuck at £21,000. According to the Government’s own figures this will leave more than two million graduates paying £306 more each year by 2020-21 if they earn over £21,000.
So why will it cost more? Let’s take a simple example. If you earn £22,000 and the threshold had increased to £22,000, you’d have repaid nothing. But with it at £21,000 you’d repay £90 a year.
And this doesn’t just hit the amount people pay each month. As many, if not most, students won’t repay in full within the 30 years before the loan wipes, it means they will repay possibly £1,000s more in total before the loan wipes.
Yet that only hits lower and middle earners. Higher earners lose out in the short term too, but for those earning enough to repay within the 30 years, as they clear the debt quicker less interest will accrue, so they’ll repay less in total.
Thus this is a regressive change – in other words it benefits high-earning graduates at the expense of lower or mid-earning ones.
You can also view my YouTube video explanation of the changes.
Since 2012 when the new system came in I’ve explained the practical finances of how student loans work, even heading the Independent Taskforce on Student Finance Information.
While I had many reservations about the 2012 changes, for me it was more important to ensure prospective students and their parents truly understood how the finances really impact them to make an informed decision.
Tonight at 8pm my ITV ‘The Martin Lewis Money Show’ main subject is student finance – I still aim to explain the system. So far this series has been the biggest consumer show on TV with between 3.7m and 4.2m viewers; it is a truly mainstream audience.
So how can I, to so many people, in good conscience explain student loans if the Government is prepared to change students’ terms after they’ve signed up, in some cases after they’ve graduated. I feel duty bound to put an ‘it can all change’ wobbler in at the end.
And more so, as head of the taskforce, I told people that in 2017 the £21,000 repayment threshold was set to rise. I refuse to be – with hindsight – the Government’s mule for mis-selling student loans. When I first heard mutterings this may happen (see my ‘Help fight the Government’s student loan U-turn that means many will pay more‘ blog) I pledged to do what I can to stop it.
So tonight I’ll also be announcing that in a personal capacity (ie, not MoneySavingExpert.com) I’ve engaged the solicitors Bindmans to investigate if there are grounds to judicial review this decision and to look at other legal grounds to challenge it (it may be people with student loans will need to agree to take cases – I doubt there’ll be a shortage of volunteers). This by necessity is being done at great speed as there is only a short period in which to judicial review.
My view (and it may be nonsense hence why I’m engaging lawyers) is there are many areas of weakness in this announcement – primarily that this is an unfair change in contractual terms for students, one no commercial company would’ve been allowed to do. It could’ve chosen to do this only for new starters, that would’ve been reasonable (I’m not saying I support it, just I wouldn’t have challenged it), but it didn’t.
One of the Government’s attempts to justify these changes is the fact it did a consultation (see my consultation response which formally sets out why this change was a bad idea). Yet 84% of consultation responses were against this change, only 5% were in favour. What’s the point of a consultation if you ignore the answers?