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Students to pay back more than previously agreed

Students who have taken out loans since 2012 will now be forced to pay back a higher amount than previously agreed upon, the government has confirmed. The amount of money that the government intends to contribute to the repayment of student loans, known public subsidy estimate, has been lowered to 20-25% from an already decreased figure of 30%. This makes up for the money that graduates do not repay because, for example, part of their loan is outstandig nat the end of the maximum repayment period. This significant cut to the resource accounting and budgeting (RAB) charge has been called an “unfair retrospective change” by critics of the planned changes.

The confirmation of a further cut to the public subsidy came in the form of a written question on the parliamentary website, theyworkforyou.com, posed by the Shadow education minister Gordon Marsden. It was addressed to the Secretary of State for Business, Innovation and Skills, Sajid Javid, and asked: “What estimate he has made of the RAB charge for students entering higher education in England in 2016-17 who take up a full maintenance loan and tuition fees when finishing a three-year course?”

The response came from the Universities Minister, Jo Johnson, who said that: “We estimate that the RAB charge for full-time tuition fee and maintenance loans, and part time fee loans, is between 20% and 25%”. He explained: “These estimates take into account the changes to student finance and the new Treasury discount rate used to value the student loan book announced at the Spending Review and Autumn Statement 2015”. He went on to confirm that the government will not update this estimate until the summer.

[su_spoiler title=”The real issues of the student loans system” style=”simple” icon=”chevron-circle” anchor=”Comment”]The student loans system has been misrepresented by many people, most notably by its’ detractors. The term student loans (including tuition fees) is in itself a misnomer: it amounts to a de facto graduate tax – and one which is incidentally repaid at a progressive rate. Therefore, while we accept that the taxpayer is funding higher education in the short term, with some repayment over a longer period of time, the student loans system is fatally flawed.

The repayment of loans is not the real issue. Rather, it is the way that the loans are measured. Whilst those from poorer backgrounds should be incentivised, the current system disadvantages those from marginally higher household incomes. This creates a middle-income trap in which those from middle-incomes receive less on average because they receive less loan, and cannot be compensated by their families, so leading to lower living standards. The problem is not the repayment of loans, but is in fact one of poor measurement systems.

The problem with making this argument is, as it always has been, that people do not want to defend those from higher incomes: there exists a cult of the poor, from which causes and movements refuse to deviate, despite the disparaging reality.
Tom Sellars[/su_spoiler]

Pam Tatlow, the chief executive of the highereducation think tank Million+, described this announcement as another “startling turn-around” by the government and stated: “We have long argued that the funding of higher education is routinely based on smoke and mirrors accounting, and this looks to be another example”. She called the reduction of the subsidy to around half its former estimate “a significant change to the figures which caused so much dispute before the May 2015 election”.

The current ongoing controversy over the RAB charge began with the government’s most recent autumn spending review in 2015. George Osbourne revealed on the 25th November that tuition fees would be extended to postgraduate students up to the age of 60 from 2016-2017, and that part-time undergraduates would become eligible for maintenance loans. He also announced that the public subsidy to cover unpayed loans was to be cut from 45% to 30%.

The previous estimate, that almost half of all loans would not be paid back, was a matter of long-running criticism, as it was said to be an unsustainable model for student finance.Repeated increases had been made to the proportion of the loan book that the government estimated would be written-off.

[su_spoiler title=”The hidden costs of higher education” style=”simple” icon=”chevron-circle” anchor=”Comment”]We hear a lot about the £9,000-a-year tuition fees that students must pay to go to university, yet on top of this is the added cost of living which for most students can run into many thousands of pounds. Despite additional loans to help cover living costs for students from less well-off backgrounds many remain hard pressed. A report by the NUS found that the average student living outside London will spend £21,440 a year – including tuition fees – on their university education, yet government loans cover just £13,747 of this. Students are therefore left with a shortfall of £7,693 a year to be covered either by their parents, additional loans, or a part-time job.

It isn’t really surprising that students have such great expenditure with the many different living costs that they are expected to cover. Not only must the basics such as accommodation and food for paid for: many courses require students to buy expensive text books – and in the case of one medical student mentioned on the NUS website, even equipment.

Living a healthy lifestyle can also be a drain on students’ bank balances. Sportspark membership at UEA costs a hefty £45, and a year’s gym membership is often far more.

Yet in addition to these costs there are many others; in order to actually live the fun and exciting life of a university student such things as nights out and meals out must also be covered. These are not often cheap, with a night out starting with an expensive entrance fee into a club, expensive drinks in the club, and then a taxi home at the end of the night.

Night-time spending aside, and with the cost of living seemingly continuing to rise, just coping with the basic costs of paying rent, bills and food shopping is leaving students increasingly strapped for cash. UEA student’s union even recently introduced a foodbank.

With students now paying more than ever to get a university education, and rising living costs in many cities due to greater student intake, it is not surprising that students are so hard pressed when it comes to money. Unfortunately the problem doesn’t look like it’s going to improve any time soon.
Henry Newton[/su_spoiler]

The announcement of the cut in 2015 broke the government’s pledge that the repayment threshold for student loans would be updated in line with graduates’ earnings and with inflation. The change was a retrospective move, meaning that current students and graduates will have to repay more than originally stated when they took out their loans. The £21,000 income threshhold at which graduates must begin to repay their loans was expected to be updated yearly but will now be subject to a five-year freeze. On average, a graduate with a full student loan can expect to repay £306 more in 2020-21 than in 2016-2017.

GuildHE, one of the two representative bodies for the higher education sector, stated at the time of this announcement that it was “absolutely opposed to this option”. The guild said the changes “will undermine the trust and confidence in the stability of the loan system for future students… and it will be more difficult to make an informed decision to go to university”.

Martin Lewis, chair of the taskforce on student financial information, called the changes to student loans: “an absolute disgrace”, stating that it “breaks the fundamental bond of politics that you do not impose retrospective changes”. As the founder of financial website MoneySavingExpert.com, he stated that commercial companies would legally not have been allowed to impose a retroactive increase in repayments and claimed that the announcement was “snuck in the back door”.

23/02/2016

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