What price trust? The cost of breaking student loan promises

When the government introduced sweeping reforms to the funding of higher education in 2012, it relied on predictions of future earnings that were uncertain and highly optimistic. Given the rising cost of student loans to the public purse, it comes as no surprise that ministers have now concluded that they need to find a fix.

What is shocking about the document issued by the Department for Business, Innovation and Skills last week, Consultation on Freezing the Student Loan Repayment Threshold, is that the government’s “preferred option” is to change the repayment terms on loans not just for future students but also for those who have already taken out loans.

Loan repayment conditions include an income threshold. Former students earning less than this do not need to make repayments. Those applying for university under the new system were told that the threshold would be £21,000 in 2016 and that this figure would be uprated annually in line with average earnings. Now the government hopes to freeze the threshold at £21,000 from 2016 for five years, after which the uprating will be reviewed, and it hopes to apply these changes not just to future students but retrospectively.

Even if the 2021 review led to a reintroduction of annual uprating, repayments for students who took out loans under the earlier terms would be significantly higher than they were led to believe at the time.

So the rumours have turned out to be accurate – this once-unthinkable retrospective policy is now official. The justification? That the proportion of borrowers liable to repay “will be lower than was expected when the policy was initially introduced”. We have been saying that since 2010. But the 2016 threshold was not our only concern, and even with a threshold freeze we expect that in future further revisions to the terms will be needed to hold down the cost of loans to the taxpayer.

How is it possible for the government to make these changes? The loan terms and conditions had a “get out” clause: “You must agree to repay your loan in line with the regulations that apply at the time the repayments are due and as they are amended. The regulations may be replaced by later regulations.”

Whether this will impress the courts should there be a legal challenge remains to be seen. The government’s “myth buster” document, designed to help students understand the changes, made no mention of it, nor did most student advisers. Ministers went out of their way to emphasise the “generous” repayment terms. Legality may also hinge on whether prospective students had any real choice when they signed up.

If changes are made retrospectively, then government, universities, schools and other student advisers will have been responsible for mis-selling on a huge scale – and mostly to people aged 17 and younger. The government is concerned about the monetary savings to the public purse but seems to have given no consideration to the loss of public trust.

Who in future will trust any terms offered by the government? The loan terms still promise that unpaid sums will be written off after 30 years, a measure intended to reassure anyone considering a career break. A few years from now, will the government say: “Sorry, we miscalculated the cost and can no longer afford that – you were foolish to think we would honour those terms”?

Changes to repayment conditions may not affect participation in the short term – evidence suggests that 17-year-olds are fairly immune to future financial considerations – but in the longer term, as the experiences of friends and family accumulate, future cohorts are likely to become more wary of taking on debt. And the impact goes far further than this, reducing trust in government and increasing cynicism.

The government has pledged to pass a law to prevent income tax rises. What about a law to prevent changes in student loan terms? This should state what the terms will be from 2021 for students starting university in 2016 or later, and any departure from this should apply only to new students. Such a measure would go some way towards restoring the trust that the government now seems so willing to sacrifice.

John Thompson is a higher education consultant. Bahram Bekhradnia is president of the Higher Education Policy Institute.