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If you sign a contract, both sides should keep to it. If you advertise a loan, the lender should be held to the terms it was sold under. Thankfully in the UK we have laws and regulations to ensure this happens. With one exception — student loan contracts. Millions of students and parents have been told and sold a lie, and we need the law changed to stop it happening again.
A year ago, George Osborne talked about students in his Autumn Statement. Yet there was one thing he didn’t have the balls to mention, instead just burying it in the notes. It stated the government would breach a promise it had made to the millions of English students who started university since 2012 — and in doing so, retrospectively increase the cost of their loans by thousands of pounds.
Student loans are designed to be repaid only once you leave university. You pay back 9 per cent of everything earned above £21,000 a year. When the new, much-criticised 2012 system of £9,000 maximum annual tuition fees was launched, the government repeatedly promised and confirmed that from April 2017, this £21,000 figure would be uprated each year in line with average earnings.
Indeed, I even have a copy of the letter sent to parents by former universities minister David Willetts, unambiguously, without caveats, confirming this would happen.
Last year, despite a flaccid consultation, in which 84 per cent of respondents warned against it, the government went ahead and performed a u-turn, freezing this threshold at £21,000 for at least five years.
Graduates will pay more each month because of it. The threshold should have risen to £25,000 but is stuck at £21,000, so everyone over this level repays an extra £360 a year.
This is a regressive change. Lower and middle-earning graduates won’t clear what they owe within the 30 years before repayments are wiped, so they will repay thousands more over the life of their loans. Yet high-earning graduates, who clear them within that time limit, will see their total payments reduced, because repaying more means they clear them quicker, accruing less interest.
This isn’t just a financial issue: its most serious repercussion is a loss of trust. Although I had reservations about the student finance changes due in 2012, before they launched, I agreed to head up the independent Taskforce on Student Finance Information.
For me, it was more important to explain the practical realities of the system so no student was wrongly put off owing to misunderstandings. But how can anyone in good conscience now explain student finance to young people when the system can be unilaterally changed, even after they have signed their loan contracts?
The government argues that its small print allows this. Yet were student loans, like all other lending, governed by the Financial Conduct Authority (FCA), it would certainly not allow the small print overrule when a firm had shouted loud and large about something in its marketing. No commercial lender could make a change to its loans in this way. It is wrong for the government to do so. Retrospective changes are bad governance.
The new Conservative administration is promising fairness, equality and opportunity for everyone. Regardless of someone’s background, the aspiration is to give each person the chance to reach their full potential. Theresa May, the prime minister, has said she wants a Britain where “every person has the opportunity to be all they want to be”.
If present and future generations can’t trust the government to keep its word on student finance, the danger to social mobility is huge. It is those especially from non-traditional university backgrounds who are most risk-averse. And there is the further danger that it will cement the wider disregard and disrespect many young people already have for politicians and the political process.
I would ask all those with influence to push the government to rethink this policy urgently. As the freeze hasn’t actually started yet, there is time for it to be reversed before the damage is done. This wrong was announced in last year’s Autumn Statement, so the new chancellor Philip Hammond could change it this year.
Of course, if the government decides that, as part of a wider austerity policy, the repayment threshold must be frozen, that is its prerogative. But it should only apply to new starters, who will at least be aware of it, and have a choice before agreeing to the financing. That is a question of policy; a retrospective change is a question of honesty.
Yet we also need to ensure there is constancy for the future. As I have been fighting this tooth and nail; Wes Streeting MP, who was my deputy on the Student Finance Taskforce (then having recently finished as NUS president), is proposing what he kindly calls the “Martin Lewis amendments” to the higher education and research bill.
Under those proposals, student loans would come under the regulatory scope of the FCA, and ministers would be prevented from making negative changes to loan terms after they’ve been taken on by young people.
Martin Lewis is the founder of Moneysavingexpert.com and presents the Martin Lewis Money Show on ITV, starting at 8pm Tuesday, November 22