George Osborne, Chancellor of the Exchequer, could face legal action over his decision to freeze the student loan repayment rate, rather than keeping it in line with rises in inflation, a decision that has meant that a proportion of students could be more than £300 worse off every year after graduation.
Osborne froze the income level at which graduates start to repay their student loans at £21,000 in 2015, a decision which was written into the small print of the autumn statement and was not mentioned in his widely televised speech to the House of Commons.
When tuition fees rose in 2012, the £21,000 limit – above which students pay 9% of their annual earnings as a repayment of their student debt – was intended to increase in line with average wages from the year 2017. However, given that the move will also reflect on retrospective students, those who took out loans from 2012 onwards, believing that the threshold would rise with wages, this freeze is set to benefit the Treasury by approximately £360 million every year after 2020, whereas graduates look set to be approximately £310 worse off every year.
The Treasury stated that the move was taken in an attempt to reduce government debt and ultimately reduce borrowing to zero, however, the Universities and College Union believe that the move will disenfranchise disadvantaged students and undermine any sense of trust in the higher education system and its methods of funding: “It will be a real financial blow to lower-earning graduates and… sends precisely the wrong message to students from disadvantaged backgrounds who are understandably concerned about the rising cost of university”.
However, consumer champion and founder of MoneySavingExpert.com, Martin Lewis, has said that his legal team are investigating the possibility of legal action against the government. They claim that this move would, effectively, be a breach of a contract, thanks to terms being changed after a financial agreement has already been reached and signed for through Student Finance England loan body.
As far as Lewis is concerned “were the government a commercial company, they would not be allowed to do this… you don’t change terms after people have already signed a contract”. His approach to the potentially financially devastating new legislation has been welcomed by many across the academic sector; Lewis has received messages from many academics supporting his campaign and dozens of students have volunteered to stand either as test cases or witnesses should the matter come to court.
Thus far, the government seem to have dismissed the claims of injustice and the threat of legal action, going as far as suggesting that the legislation has been somewhat verified by the academic sector.
A spokesman for the Department for Business, Innovation and Skills claimed that: “Graduate earnings have not risen as they were expected to and we consulted on the change with the sector and student organisations in the summer (2015)”.