Changes to the student loans agreement

Recently there was a petition that was going around to prevent the government changing the terms of the student loan agreement and that petition has resulted in a debate in parliament. In this post, I hope to shed some light on the proposed changes why they are happening and what it will mean for students.

Last year soon after the election the then Chancellor of the exchequer George Osbourne announced his budget and buried deep within that budget were plans to retrospectively change the terms of the student loan payments effectively meaning Students both past, present and future will pay more interest on their loan payments after the £21,000 threshold.

Why? well, in short, is that the government is not getting enough money back from the Student loans system, in fact, It was dangerously close to being unfeasible i.e. the government giving out more than was repaid.

Now the reasons the government was not receiving as much as predicted are numerous, one is that there are massive numbers of Graduates in low-skill, low pay and insecure jobs. In fact, the Higher education and statistics authority have said that 1 in 3 graduates in the UK is in low skilled work 6 months after graduation, just shy of 17,000 are unemployed.

Another reason is according to Helen Jones MP the somewhat lacklustre Department of Business, Innovation and Skills (BIS) is in chaos, this department simultaneously manages to both “consistently over-forecasts how much it expects to collect annually”, A 3.2 billion shortfall according to the British library, while over predicting the number of loans to not be repaid, 50% compared to the National audit office’s(NAO’s) 33% and the Government’s 45%.

This department was also warned by the NAO that they were in risk of wasting hundreds of millions of pounds because they had little employment information on thousands of graduates, so they didn’t know who was supposed to be paying back what?

So why are students, Teachers and MPs so angered by this change? Primarily the reason is that instead of changing their economic model to counter the lack of skilled jobs or fixing up the department that is clearly broken, they went against the advice and will of 84% of the people and institutions the BIS consulted and lumbered the cost to the students.

More than this is that they have done it in an underhanded way, no commercial company would be allowed to do these retrospective changes. Some feel that they were mis-sold their student loan as all material on repayments gave the current repayment rates, which are hard enough to calculate as it is, and gave no mention to the idea of retrospective changes, that notion was buried in the terms of conditions.

In my opinion, the reason people are so offended by this immoral adjustment is that its effects are disproportionately spread, the low earning, women and minority students will be worse affected. The government’s own equality impact assessment stated “in terms of lifetime earnings our analysis shows that the greatest financial impact will be concentrated on those with and around median lifetime earnings between £20,000-£35,000” the breakdown of the effects are this:

For those who earn between 21-36 thousand, you will have to pay an extra £6100 over the loan's life. For those who earn over 40 thousand you will have to pay an extra £400 and for those who earn over 50 thousand, you will have to pay an extra £200. The reason for this is that the changed interest will compile for lower earners and relatively the lowest interest bracket was the highest raised since the higher brackets had a +3% percent interest rate already.

So what affect will this have on individual students? Well,

the impacts are hard to contemplate, as they largely depend on multiple factors like degree, university, future job/career, gender and ethnicity (I know the latter 2 shouldn’t count but sadly they do).

Take a student like myself, I will most likely become a forensic scientist. Now a typical forensic scientist will earn £20,000 to £35,000 over their career some do increase to £45,000 after a few decades. However, I will most likely have to pay the extra £6100, or at least most of it as by the time my income increases above 35 thousand I will be approaching the cut-off date.

For me and the thousands of students facing a similar situation it could mean that I will never be able to buy a house, since it is hard enough as it is let alone with tones of debt and then more debt being added on.

I know this post was long my next post will be in the form of a letter to my MP and to the leader of the opposition the pm and the chancellor of the exchequer asking why these changes will go ahead and if they are prepared to challenge them.