The next time someone tries to tell you that the public doesn’t care about student finance, politely inform them that the Treasury Committee received 52,000 submissions to its survey on the subject in a single month, one of the highest response rates on record. The majority (49,357) came from people who took out student loans. And their message is extraordinary.
For more than 80 percent of this (admittedly self-selected) sample, the impact of repaying these loans is worse than expected. Surprisingly, the interest and repayment terms do not seem reasonable. (Reminder: the interest rate makes it virtually impossible for most people to repay it; repayment thresholds have been frozen by the Chancellor; and the repayment acts as a 9 per cent surcharge which raises the marginal rate of a graduate earning the London Living Wage by up to 37 per cent.) Two-thirds say it has a material impact on their future financial planning. But the number that stood out to me was 28,275: that’s the number of people who said they didn’t understand the terms and conditions of their student loans before they took them out.
The committee also published a series of promotional materials provided by the Department for Education for “student finance tours” in schools until 2020. They informed prospective students that “thresholds will be adjusted annually in line with average earnings” – which has not been proven. The interest rate that has become so controversial (RPI plus up to 3 per cent) is mentioned but not properly explained. On a PowerPoint slide, a cheerful yellow box with a light bulb illustration reassures anxious students that the interest rate does not affect monthly payments.
How much will these payments be? Another slide provides some useful comparisons. For someone earning £27,725, just above the threshold, payments will be £15 a month – slightly more than a mobile phone contract (£14) but less than toiletries (£17). This is due to the fact that the payments then increase significantly. For a salary of £66,000 – the minimum required for the repayments of an average loan to cancel the monthly interest – this figure becomes £299. This is an awful lot of toilet.
These materials were not shown to economics graduates. They were for teenagers, and it’s pretty clear what message they were meant to get across: this is not the kind of debt you need to worry about. Now the first batch of those teenagers are in their early thirties, wondering why they’re losing hundreds of pounds every month on a credit balance that never goes down.
“There’s a real duty of care here,” Meg Hillier, chair of the Treasury Committee, told me in an interview with New statesman podcast. She added that it was “really clear” that people “didn’t understand what they were signing up for when they were 18”.
This could not technically be considered a mis-selling scandal, Hillier explained, because it was the government providing these loans and not a private company. “Unbelievable, in law … it is not regulated as a financial product.” This is the case even if the government changes conditions midway, as Rachel Reeves has done by freezing thresholds.
There is little scope, therefore, for a class action and compensation of the PPI variety. But the fact remains: a generation of young people were told that college was the key to financial prosperity, but misled about what that key would cost them. The only government intervention so far has been to make matters worse. One respondent complained that “freezing thresholds feels particularly cruel and takes away my ambition and hope”, while another called the repayment rate a “tax on ambition”. About six million people have outstanding student debt. Ministers on whose desks the report of the Treasury Committee, due this summer, will be placed, should take note. This issue – like the loan balances of millions of aspiring young people – is not going anywhere.
(Further reading: Immigration has fallen, so why does no one care?)
