Autumn Statement Submission 1: Unfreeze the student loan repayment threshold, stop the retrospective hike

On 23 November the new Chancellor Phillip Hammond, will present his first Autumn Statement – it’s likely to contain a range of major policy announcements. As always the Treasury has invited submissions, and this year MSE and I felt it was time to take them up on the offer – we’ve submitted two. Here’s the first (the second is end ridiculous affordability rules for those remortgaging)…

Autumn Statement 2016 Representation On Student Loans

Martin Lewis, Head of the Independent Taskforce on Student Finance Information 2011–2013, and, the UK’s biggest and most trusted consumer website.

Core Proposal:
In the Autumn Statement, the Chancellor has an opportunity to reverse the Government decision to freeze the student loan repayment threshold at £21,000 for five years. This decision breached a prior Government promise to all English university starters since 2012 – that it would be uprated each year in line with average earnings from April 2017.

In effect this is an unfair retrospective hike in the cost of student loans to millions of students. The Government unilaterally changed loan conditions years after students had signed up to their loan contracts – no commercial firm would’ve been allowed to do this. If the repayment threshold is to be frozen, it should only apply to new starters, who will at least be aware of this condition before agreeing to the financing.

The new Conservative administration is promising fairness, equality and opportunity for everyone in the UK. Regardless of someone’s background, the aspiration is to give each person the chance to reach their full potential.

  • The change to student terms was profoundly unfair, a breach of trust, and a form of mis-selling.
  • It’s a highly regressive change, disproportionately affecting lower- and mid-earning students, while benefiting extremely high earners.
  • It risks damaging any trust that young people may have in politicians and government.

As the freeze hasn’t actually started yet, there is time for it to be reversed before the damage is done.


Retrospective changes are against good governance
In last year’s Autumn Statement, the decision was taken to freeze the student loan repayment threshold at £21,000 rather than see the threshold rise annually with average earnings from April 2017, as originally promised. This decision backtracks on a promise made to students by the Government and effectively changes the terms and conditions of the loan agreement long after it has been signed. This means millions of students who started their university education from 2012 onwards will pay thousands of pounds more in total over the lifetime of their loans.

A negative retrospective change like this is quite simply wrong. It goes against all forms of natural justice and good governance.

Wriggling out of a commitment to young people is dangerous for democracy
The impact of this change of policy isn’t purely financial because it has significant ramifications for trust and fairness. While the small print did leave wriggle room for a change, the message given to students was this rise from April 2017 was a fait accompli.

Repeatedly and unambiguously the message to the public was that the threshold was always going to increase with earnings. On 3 November 2010, the then Universities Minister David Willetts stated to Parliament:

“We will increase the repayment threshold to £21,000 and will thereafter increase it periodically to reflect earnings… The Government is committed to the progressive nature of the repayment system.”

We also have copies of statements made to parents, by the minister, which told them, without caveats, that this uprating would happen. If student loans were governed by the Financial Conduct Authority, like every other ‘loan’, the regulator clearly would have struck out this threshold freezing as a breach of its rules.

Similarly, the Government told trusted agencies, including the Independent Taskforce on Student Finance Information, which was tasked with explaining how the system worked to students and parents, that the uprating would happen. The Government also signed off on ‘fact checks’ of information which was given to the public, and calculators worked on that basis.

Commitments of this stature create a bond of trust between the Government and students. Making a retrospective change of this magnitude is a clear breach of trust – it’s simply not what students were told when they were deciding to study at university. This won’t just be reflected within the narrow confines of student finance. It teaches millions of young people not to trust the system, politicians and government.

Lack of transparency around the decision and its communication
This decision was the outcome of a 2015 Department for Business, Innovation and Skills consultation into the freezing of the student loan repayment threshold. The responses to this consultation were overwhelmingly against the policy (84%) with only 5% being in favour of this change. It is unclear why the Government decided to press ahead with the implementation of the freeze despite the evidence of the weight of opinion against it.

Furthermore, the final decision to freeze the threshold was buried in the detail of the Spending Review and Autumn Statement 2015. At the very least, every student who has taken out a loan since 2012 should have been written to, to explain the threshold will no longer increase with average earnings as per the original arrangement and what that means for them in a practical sense.

The communication should have been clear, transparent and provided clarification of the revised terms and conditions of the loan.

This policy undermines credibility of the student finance system
The reputation of how the student finance system works is poor, but this issue goes beyond the debates of how university education should be funded and the widespread misunderstanding of how the system itself operates.

While a government is free to change student finance for future university starters, it should never make negative retrospective changes, which undermine the entire credibility of the student finance system. If loans can be detrimentally altered for existing students, future school leavers will legitimately doubt whether the terms they eventually sign up to will be honoured.

This could deter some from going to university, particularly those from non-traditional university backgrounds. This policy change therefore contradicts other efforts across Government to increase university participation from students from non-traditional backgrounds.

This is a regressive change which works against wider Government policy
It is the Government’s stated intention for policies to be progressive, and the Prime Minister has said she wants a Britain where “every person has the opportunity to be all they want to be”.

Freezing the student loan repayment threshold works against this. Lower- and middle-earning graduates pay more each month because of the freeze, and as they won’t clear what they owe within the 30 years before the repayments wipe, they will repay thousands more over the life of the loan. Yet very high-earning graduates will actually see their total repayments reduced – as by repaying more quickly they will accrue less interest.

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