A Few Reasons Why Changes to Student Loan Repayments Could Decimate Your Income

by Hannah Sketchley

26 October 2015

You’ve probably got a bit of student debt hanging around, especially if you took out a loan after 2012. A lot of people have. You might have got out a college loan to fund those couple of missing A levels, or slogged your way through three years of university to end up with a fun five figure sum that’ll never be paid off. But like me, you probably don’t earn enough to be paying off a lot of your student loan each month, if any at all. Bad news though: the government is potentially about to steal an extra £6k from you – and of course you still won’t pay the whole bloody thing back.

Changing the small print.

In what could be the most devastating attack on your earnings of recent times, but also the most difficult to explain in an interesting way, the government has just finished consulting on its approach to the borrowing terms of student loans.

When you took out a loan in 2012, there would have been a lot of small print, which you probably didn’t read because you had to take the loan out anyway, so what difference would the conditions really make? In that small print, the government reserved the right to change the repayment conditions of your loan at any time, and that’s what they’re trying to do right now.

One of the conditions of raising the cost of education in 2012 was that the amount of money you had to earn before you began to pay it back would be higher than the previous fees system, sitting at £21k and rising in line with average earnings each year. The government is now proposing to freeze this threshold for the next five years, meaning a greater proportion of your earnings over time will be up for grabs when the amount of loan you repay is calculated, and so you will end up repaying a greater amount. Whilst you are paying back, however, you will continue to accumulate interest.

Here’s a bit of maths.

Someone on a starting salary which starts around the level of the repayment threshold will, it is predicted, pay around £6k more back to the government under this new system, and still end up with around £19k written off. Those starting on £30k will be similarly affected, but those on higher salaries stand to benefit from these changes as they will pay off their loans somewhat quicker.

Of course, those who pay off quicker under this system will accumulate less interest and pay back a lot less in total. By doing this, the government is effecting a retrospective price hike on education and meting out the sharp end on those with lower incomes. To put it bluntly: the rich and high earners are paying less for education than those on an average wage.

This isn’t happening in a vacuum. If you take into account the conversion of maintenance grants to loans, those who receive the full maintenance loan will, of course, have to pay back even more – and the Institute for Fiscal Studies is predicting shaking an extra £9k out of them over the course of repayments.

Down the black hole of the RAB charge.

The student movement has been saying for some time that fees and the current structure of higher education funding doesn’t work in the UK: not only is charging for education a baseline nonsensical prospect, the way it’s being done doesn’t even work very well.

The RAB (resource accounting and budgeting) charge, which means the amount of money the government will lose on student loans, has been sneaking up to 45% recently. This means the post-2012 higher education funding system now costs the government the same as the pre-2012 fee regime. It’s almost like they weren’t really motivated financially, but wanted to fully marketise the education system and stamp down on social mobility…

Here’s some sneaky accounting.

There is something else going on here, over and above the changes to loan terms, and it’s all about how the loans are recorded in the national debt and the deficit.

The amount the government borrows to make up the difference between the loans they issue in a year and the repayments they receive in the year (about an £8bn gap, so small change) doesn’t count towards the deficit, as it’s a loan to issue more loans – but it does count towards the national debt. This is broadly a secondary concern to the deficit in the eyes of the current government and the public.

The major political narrative of the past five years has been cutting the deficit, and it is around this that the most recent election was focused. ‘Cutting the deficit’ is now one of the primary mandates for fiscal policy.

The scrapping of maintenance grants is part of the same trick.

Expenditure on maintenance grants did count towards the deficit. So by sneaking £3bn away from expenditure recorded as part of the deficit to loans – even though the actual amount being repaid doesn’t change – the government has still technically fulfilled the manifesto pledge to cut the deficit. Similarly, trying to claw back some money to lower the RAB charge means the government can continue the myth of having chopped the deficit…without actually having got back that much more money.

This is an ideological attack – but also a mobilising opportunity.

One of the things which will be said by those in defence of this move is that loans were not forced on anyone, and that you could have read the small print before you signed up. Well, anything’s possible, right? In reality, how many people could afford an education without a loan? A tiny minority, but coincidentally the minority currently represented in the Conservative cabinet.

It cannot be said enough that the fiscal holes in this policy expose it for what it is: another sweeping ideological attack on lower earners, and just another way of stamping out social mobility. This must be called what it is: a retrospective fee hike, which proposes to charge the rich less for education than the poor.

In the face of attacks on those entering education (through the removal of maintenance grants) and attacks on those who are currently leaving education (in the shape of these repayment changes), the student and union movements have a unique opportunity to mobilise across society. Whether you are a low-paid office worker, just about beginning to pay off your debt, or someone being put off higher education for fear of your repayments being suddenly changed – get active, get vocal. With a significant amount of campuses mobilising for the free education demonstration on 4 November and rumblings of a student strike, is a US-style debt strike the next thing on the agenda and the way to beat back these regressive policies?

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