‘Unfair’ student loan system must be reviewed

For an 18-year-old with limited experience of the earnings and tax system, it’s not easy to foresee the long-term effects of borrowing the average £44,000 cost of a degree.

So a new report by London Economics, commissioned by my union, the University and College Union, should be required reading for all Year 13 and college students and their families as well as for anyone else considering applying to university or with a stake in higher education policy.

The report sets out in black and white the exact scale of the enormous tax burden that will hit today’s undergraduates through their 30s and well into their 40s as a result of the current university funding system in England.

The £9,000 annual tuition fees introduced in 2012 were billed as a progressive income-contingent loan system. The theory went that degree study is free at the point of use and graduates will only pay back the debt once they benefit from higher earnings, so why shouldn’t they contribute in later life?

But that progressive claim began to crumble in the face of an inherent flaw and various tweaks that proved to have dire consequences. Ministers promised that fees above £6,000 would be the exception, despite everyone else saying that £9,000 would be the norm – which of course it was.

Then there were those tweaks: maintenance grants for those from the poorest households were replaced by maintenance loans taking the poorest students’ debts up to £57,000; the repayment threshold, which was supposed to rise in line with average earnings, was frozen; and interest rates on loans will go up to 6.1 per cent from September.

All this means that the system we have leaves the poorest students with the biggest debts, all students must now pay back the debt earlier and they’ll be building up a whopping level of interest on that debt, even while studying.

The London Economics report truly puts the lie of progressivity to bed, demonstrating that lower and mid-earning graduates are the biggest losers under the current system. The reality is that graduate earnings are hugely variable and those at the lower and middle end of the earnings spectrum will pay more and for longer than their higher-earning contemporaries.

In a nutshell, the more you earn, the quicker you pay the debt off, so the less interest you accrue and the less you pay overall. For example, men in social work, teaching and nursing with median earnings (or slightly below) face a greater loan repayment burden (3.2 per cent to 3.6 per cent) over their working lives than men in financial or legal professions (2 to 2.1 per cent). 

The incentive to choose a career in the beleaguered public sector, already struggling to recruit thanks to pay restraints and heavy workloads, will be even lower than it is now.

University funding has been back in the limelight thanks to Labour’s manifesto pledges to abolish tuition fees, to which many attributed the party’s success at the polls. In reality, however, polling by Ipsos Mori since the election found a big swing to Labour among younger voters, but found a bigger swing in the 25-34 age group than in the 18-24s (the former already feeling the pinch from loan repayments).

Meanwhile the Conservatives are in turmoil with senior party figures admitting that student fees may need to be reviewed. And then in weighed the original architect of tuition fees, Andrew Adonis, criticising the rising fees while highlighting examples of vice-chancellor pay packets that dwarf the prime minister’s.

Of course, he is right to highlight the embarrassing largesse of those at the top, and that is a campaign my union has pursued for several years, calling for greater transparency around decision-making and a national public register of vice-chancellors’ pay and perks. But Lord Adonis’s interjection is only helpful to a point – excessive pay at the top is a side-show compared to the real mess of university funding.

Being generous, we can only say that politicians defending the system as progressive cannot understand it. Those with the most to lose are unlikely to appreciate that they are walking into a future tax crisis. The middle-aged squeeze on incomes is a largely unforeseen consequence of the current system and that isn’t fair to the young.

Sally Hunt is general secretary of the University and College Union.