Student loans: What they don’t want us to talk about
The government’s plans to alter student loan repayments has been received with fanfare, but is this just a distraction from what is really going on?
Prime Minister Theresa May announced plans to raise the earning threshold for the repayment of student loans. This means that rather than beginning to repay your student loan when you earn over £21,000 a year, as it was before, you now won’t have to repay your loan until on an yearly income of £25,000 or more. The government also said they will not be putting up tuition fees (again) at the moment.
This positive publicity is much needed but no surprise, given that the Student Loans Company (the body which organises loans and funding for UK students) has hired a private market research company.
This has involved the market researchers conducting focus groups with students in order to find out what they know about their loans. However, these are not feedback sessions, none of the information is being taken back to the Student Loans Company (SLC) in order to address any issues raised. This will reportedly be done through the government’s own review, not with the voices of students in these sessions.
Instead, these groups are to find out how they can “put a positive spin” on any negative issues brought up during the sessions. This is a direct quote stated twice by the leader of the market group, in which participants were told they could not attend if they had family links to any journalists (or SLC members).
Here’s what they would rather everyone forgot about…
The government sold off student debt to private companies
In what is essentially a move towards privatisation, the UK government has been selling the debt of students who took out loans before 2012 (for now) to private companies. This means graduates will have to pay back their loans to these privately owned businesses, who now own their debt.
The Government quietly changed the terms of loan contracts in 2015 which meant students could be left paying more. This change affected agreements which had already been signed as legal agreements. Martin Lewis from the financial advice website, Money Saving Expert challenged the government and personally paid for legal action against them.
Your student debt is being increased by 6.1% per year whilst you are still studying. Many students believe this only happens once they graduate or perhaps that they would only be asked to return the amount they borrowed. In fact, this additional interest has been increasing your student debt from the moment you first received your loan. This means that by your graduation your debt has already increased.
Everyone likes to recite that if you haven’t paid your student loan off after 30 years it will be wiped. Which is true. However, it is important to remember that ‘loan’ really refers to ‘debt’ – i.e. the original amount you borrowed PLUS the interest which is being added on every year.
Depending how much you earn, you may pay back less than you borrowed. However, if you are a higher earner you could be paying back more than twice your original loan due to the cumulative interest.
This is because you pay back a percentage of your salary plus interest, so if you are in this bracket you will be paying back large amounts of money each year. After three decades this could amount to more than double what you originally borrowed but you still would not have paid off your debt due to the interest rates. (Exact figures availablehere.)
Here is a table with some of the most interesting figures from Martin Lewis’ Money Saving Expert website. This shows the estimated debt repayments based on different projected earnings (in this sample from £25,000 and above).
This is based on someone who has borrowed £42,600. The significant column is highlighted in red, which shows how some people could be paying back significantly more than they originally borrowed. Many still have to have their debt wiped after 30 years because they still would not have been able to pay off the interest.
The Student Loans Company are NOT regulated
The Financial Conduct Authority regulate the financial sector and companies who lend money within it. They are there to protect consumers and businesses and the ensure the industry is fair. However, the Student Loans Company is not regulated by the FCA. This means they are only answerable to the government, so there is no other organisation to go to if something needs challenging or there are changes to student contracts again.
There are, however, lots of good things about student loans.
Other countries like the United States have a much less affordable system (although other countries also educate people for free).
Many individuals who would not be able to go to university without these loans are able to access higher education away from home.
If you are not a high-earner as on the earlier table, you could of course pay back less than you originally borrowed (a little bitter-sweet, however, if you went to university to educate yourself for a high-paid job).
Ultimately, what is needed is transparency. Students enter into a financial agreement that they often do not understand. They have a loan shrouded in confusing statistics and the same re-churned statements from a government who have nobody else to answer to. Unfortunately, despite their latest amendments, this is the same government who sold our loans, tripled tuition fees and scrapped NHS bursaries.