Unfair Deal

Report Overview

  • Changing existing loan terms is unfair on students, would undermine trust, and could prove unlawful and unenforceable if challenged
  • If the repayment threshold were frozen for five years, as proposed, the typical borrower is estimated to repay an extra £2,800
  • If the repayment threshold were frozen until the end of the repayment period, the typical borrower is estimated to repay an extra £11,000
  • If the threshold freeze were extended to the end of the repayment period, women would repay an extra £12,800 and men £8,900. This is because women’s earnings tend to be lower and they are more likely to be repaying across the 30 year repayment period
  • Borrowers who would have been eligible for maintenance grants will see large increases in average repayments. This is because of their average loans, which will increase to over £50,000, and the effects of the proposed five year threshold freeze
  • The uncertainty created by the proposed changes effectively forces students to write an ‘open cheque’. This may discourage participation or distort decisions as to where, what and how to study

Key Findings

  • Changing existing loan terms is unfair on students, would undermine trust, and could prove unlawful and unenforceable if challenged
  • If the repayment threshold were frozen for five years, as proposed, the typical borrower is estimated to repay an extra £2,800
  • If the repayment threshold were frozen until the end of the repayment period, the typical borrower is estimated to repay an extra £11,000
  • If the threshold freeze were extended to the end of the repayment period, women would repay an extra £12,800 and men £8,900. This is because women’s earnings tend to be lower and they are more likely to be repaying across the 30 year repayment period
  • Borrowers who would have been eligible for maintenance grants will see large increases in average repayments. This is because of their average loans, which will increase to over £50,000, and the effects of the proposed five year threshold freeze
  • The uncertainty created by the proposed changes effectively forces students to write an ‘open cheque’. This may discourage participation or distort decisions as to where, what and how to study

Recommendations

  1. No retrospective changes to loan terms should be made, but that is not enough to restore trust. The ‘get out’ clause should be removed and legislation to guarantee the loan terms should be introduced.
  2. Freezing the threshold for five years introduces an unnecessary level of uncertainty, which then leads to the need for a review at the end of the freeze. To reduce this uncertainty the threshold levels, both for repayment and maximum interest, should be set in terms of a percentage of average earnings.
  3. New borrowers should be given definite terms, which should apply for the whole repayment period. The longer term risks should be borne by government, not individual students who cannot be sure of being amongst those successful graduates in well paid jobs.

September 24, 2015