Student loans: Will it soon be pay-back time?

Heads of universities are lobbying the government to alter student loans as a way to limit cuts. Students may have assumed the arguments about the new fee system were done and dusted. But as the axe looms over government funding for universities, senior academics are lobbying the government for graduates to start paying back their loans much earlier to cut public costs.

Universities have already suffered severe cuts to their government funding for teaching and capital. Most are braced for further reductions when George Osborne unveils his comprehensive spending review on 26 June. Yet vice-chancellors warn that there are few pots of money left to raid, and further scything of the universities budget could seriously threaten the quality of teaching and science.

Although none is keen to say so publicly yet, some vice-chancellors see changing the student finance arrangements as a fairly painless way of absorbing cuts.

Backing them up is Nicholas Barr, professor of public economics at the London School of Economics and one of the leading experts on student loans. This, he argues, is a no-brainer. At present, graduates have to start repaying their loans when they earn £21,000 or more, but Barr is adamant that this should drop to £18,000.

“The problem with the current arrangement is that the repayment threshold is so high that far too many graduates do not repay the loan in full,” he says. “Of course, the National Union of Students and some posturing politicians would say lowering it to £18,000 was hitting graduates, but let’s get this in proportion. It would only add £22.50 a month to repayments.”

He adds: “The purpose of student loans isn’t to help the poor – there are much better ways of doing that. Politicians claiming that they have changed loan repayments to help poor people are just playing political games, or showing total economic illiteracy.”

At present, the £21,000 repayment level is also index-linked to changes in wages. Vice-chancellors are suggesting that one less politically explosive way of saving money would be to remove this index, so that over time graduates would start to repay sooner anyway – perhaps without even noticing the change.

The head of one modern university says: “There is quite a lot of evidence that students and parents don’t really understand the new financial system, so you could play around with it quite easily.”

He adds: “I fully expect the government to say the repayment threshold will be fixed in pound terms. That would make a big difference pretty quickly.”

However, the NUS is furious that graduates might be used as a sort of shield to deflect cuts. Liam Burns, its president, says: “A cut in the repayment threshold stands to take money out of lower-earning graduates’ pockets and would further undermine the claims ministers have made for their policies.

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About dbda
dbda is a corporate social responsibility consultancy embracing education and safety in the community. We are privileged to work with a large number of blue chip corporate clients, Government organisations, charitable bodies, Institutes and local authorities. We also have a network of schools, professional bodies, associations, universities and partners, with whom we regularly work in collaboration.

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