‘Doomed’ student loan system could be replaced by graduate tax, says ex-watchdog
A graduate tax could replace student loans, according to the former director of the student regulator, who described the current system as “doomed”.
Chancellor Rachel Reeves has faced growing calls for change after defending student loans despite graduates’ debt becoming harder to repay.
John Blake, the former director of the Office for Students who left his post last month, claimed reform was now inevitable and the government should listen to graduates with mounting debts as interest rates rise.
“British student loan system is doomed,” he said Times. “It’s not that it’s a bad deal, it’s an extremely generous deal on paper. But the people who built it didn’t take into account what it would feel like when repayments started rising.”
“It’s an oppressive feeling for a generation of graduates, now entering their early thirties, who have watched nine per cent of each paycheck disappear as the debt total continues to somehow grow. It feels like an unimaginably unfair deal that they don’t understand and that they can no longer escape. And no matter how many graphs we make of average graduate salaries, a system that feels so stifling for so many is fundamentally broken.”
“Plan 2” loan borrowers who start university between 2012 and 2023 are charged RPI plus up to three percent interest from the start of their studies. Student loan borrowers on Schedule 2 in England and Wales pay back nine per cent of their income when they earn at least £28,470 a year. The loan is deleted after 30 years.
According to Mr. Blake, whether the loan was financially beneficial to college applicants was not considered because: “If it isn’t, you’ll never pay back the money you borrow and you’ll never have to pay back your student loan before you can buy groceries, for example.”
But he added: “That’s not how it works: the frozen repayment threshold means even those at entry level jobs can earn enough to repay, but their debt is such that unless they reach the top earnings brackets they won’t be able to get out of it before being written off from retirement.
“Every year the Student Loans Company sends them an update and for many it shows that they owe more now than when they left university. It’s an overwhelming feeling to lose almost a tenth of your earnings just to make no dent in your debts, especially when the cost of living is soaring around you. Turns out not having to pay off your student loans out of your pension isn’t exactly comforting.”
Martin Lewis, founder of MoneySavingExpert, is urging Ms Reeves to reconsider freezing the student loan repayment threshold. He told BBC Newsnight last week: “People on Schedule 2 loans have loans linked to inflation, above inflation.
“So when we’re faced with high inflation, interest rates have also gone up, and that’s been especially painful. Even though those rates have come down a little bit, there’s still a lot more added on top of your loan, making it even harder.”
Health minister Wes Streeting said the debate over student loans was “worth having” because it was “quite difficult” for young graduates.
As a former president of the National Union of Students, he said he thought it was fair to ask graduates to make financial contributions: “Of all the systems we’ve seen charging students or graduates, I don’t think any of them have done it right.”
“In short, I think we need to look at all of these things broadly. I think there is a debate about what our priorities are as a country. There are a lot of things you can do about student finance. For example, you can say that the interest rate is too high, or the repayment threshold is too low, or you can say that the amount received each month is too high.”
Alex Stanley, vice-president of higher education at the National Union of Students, said: “We’re having a national debate; the call is loud and clear. The system is broken beyond plaster repair. It doesn’t work for students. It doesn’t work for graduates. It doesn’t work for universities. The Chancellor needs to reverse his decision to freeze repayment thresholds.”
