Written evidence submitted by MoneySavingExpert (STL0046)

MoneySavingExpert.com welcomes the opportunity to respond to this inquiry in writing. We comment on the questions we feel best informed to answer, and have grouped some questions.

Question concerning the Government’s retrospective change of the repayment threshold:

• Did altering the repayment threshold post loans being taken out undermine the perceived fairness or confidence in the system?

Yes, altering the student loans repayment threshold was an abomination. It was a breach of trust which should not have happened in fair Government.

The Government used Parliament as a vehicle to tell students about the raising of the threshold. Commitments of this nature create a bond of trust between the Government and students. Altering the repayment threshold has knocked the faith of students, both in the loan system and in the political system.

There needs to be a lock in the repayment terms and conditions. No FCA regulated loan provider would be allowed to change the terms and conditions of products after they are taken out: to ensure trust in the system, the Government should not be able to do this either.

Questions concerning the benefits of a graduate tax as opposed to a student loan:

• Would a graduate tax be preferable to the current model?
• Is the current system already effectively a graduate tax?
• Is a graduate tax a greater disincentive to study than a student loan?

The Government must get rid of the language of debt. It is simply misleading. Calling the current system a “loan” makes it more difficult to explain and puts potential students off. Using the language of debt means people unnecessarily fixate over the total amount they borrow and interest rates, rather than the rate of repayment which is arguably most important.

In reality, the current model is already effectively a graduate tax. Graduates only repay when they earn above the repayment threshold, and what they pay is in line with their earnings.

However, calling it a ‘tax’ wouldn’t work because a tax could not be hypothecated for every university (meaning every student would have to repay the same). In addition, graduates who move abroad can’t be taxed, meaning foreign students would not be able to repay under a tax system.

The existing student finance model is called a graduate contribution system in other countries (for example, in Australia). This is a renaming that MoneySavingExpert and Martin Lewis have long called for. The Universities Minister Jo Johnson has also himself stated that the system should be seen as a graduate contribution, saying:

“…this should be seen best as a graduate contribution. It is clearly a time-limited graduate contribution, because it only lasts 30 years and it's also an income-linked time-limited graduate contribution. 

“So I think we do need to work on the language and cease to use the terminology of debt and loans, and it has to be understood as a time-limited and income-linked graduate contribution that people are making.” [1]

Reforming the language to a graduate contribution system would help prevent people being put off from studying, or making ill-informed financial decisions, such as using savings to pay their children’s tuition fees to “save them from a lifetime of debt”.

Question concerning transparency of Government communications with parents and students:

• Is it clear to prospective students what they are signing up to when they take out a student loan?

No, the Government miscommunicates student loans to potential students and their parents in several areas.

As explained, the Government does not communicate clearly enough with students and parents around the fact that the terms of their loan can change retrospectively, and that the system functions more like a tax than a loan.

In addition, the Government does not communicate clearly the implicit parental contribution.

Many students don’t get the full maintenance loan, and parents are meant to fill the gap. However, nowhere in the main Student Loans Company communications does it explicitly say this – the most is a statement that “depending on their income, parents may have to contribute towards the living costs of their student children”.

It must be the Government’s (or its agencies’) duty to explicitly inform parents about the parental contribution, including exactly how much they are expected to give. Not doing so causes rifts between students and parents who don’t make up the gap, as well as budgeting problems which are sometimes so severe that students are forced to leave university.

Question concerning the affordability assessments:

• Are the SLC’s assumptions on affordability assessments to determine maintenance loans effective and transparent?

Three key issues mean that maintenance loans need to be reformed.

Issue 1: The maintenance loan is too little money in the first place

While most of the media tends to focus on the £50,000 price-tag a student faces when they graduate, in reality the biggest practical problem that students face is merely affording to live while studying.

Students with access to the maximum amount of loan can barely cover accommodation fees in some circumstances. Even with part-time jobs, help from parents, Government grants and maximum loans, students are struggling. If we find ourselves in a situation where students can't afford to eat, the system clearly isn't fit for purpose. 

It is possible to say that no student needs to pay upfront to go to university, however, for some, studying is becoming less feasible as costs continue to rise but their income doesn’t.

Issue 2: Parental contributions places severe pressure on some families

Many students don’t get the full loan, and it can be difficult for parents to fill the gap. This can be particularly so for families with more than one child and university at the same time.

This is leading to a situation where parents are struggling to find the money to send their kids to university and their children are struggling with basic living costs.

The lack of communication about the parental contribution just makes this worse: hindering parents’ ability to prepare and save.

Issue 3: Parents cannot be forced to contribute

Finally, parents who are unwilling to supplement their student loan cannot be forced to contribute. This is even if they earn more than the £25,000 income threshold at which their child’s maintenance loan will begin to be reduced.

Either students’ and parents’ finances should be separate or there should be some ability to force parents to comply.

Additionally, the lack of communication from the Government about the parental contribution only makes it more difficult for students to justify the help they need from their parents.

Questions considering the sale and/securitisation of student loans:

• What are the implications of the sale or securitisation of student loans? 
• What are the implications for students and graduates?

The impact of the sale of pre-1998 student loans to Erudio in 2014 caused major problems, despite reassurances at the time from the Government.

While the terms and conditions did not change, the operational practice did. For example, communications with graduates were heavily altered and student loans were put on people’s credit files for the first time. Erudio also made errors such as taking direct debit payments from those who had deferred and were therefore exempt from loan repayment. We also received woeful reports of its customer service.

In addition, the Chancellor was questioned about this at the Treasury Committee on 12 December 2016. Wes Streeting MP asked about the “retroactive changes to student loan repayment conditions, in particular freezing the threshold at which graduates would begin to repay from next year…”. The Chancellor replied:

“I would have to be frank with you and say I do not see scope for reversing that decision. It is an important part of our overall fiscal consolidation and, of course, it is also about preparing the student loan book, ultimately, for sale as an asset sale.”

Previously we had been told that there were no plans to sell post-2012 student loans. This begs the question of whether the Government considers the rights of investors to have confidence in what their rate is to be more important than the rights of students to have confidence in what they will repay.

It is therefore vital that any sale or securitisation of loans gives a cast-iron guarantee that there will be no negative changes to the terms and conditions, operational practices, credit information and point of contact for student loans.

About Martin Lewis

Martin Lewis is the founder and executive chair of MoneySavingExpert.com and former head of the Independent Taskforce on Student Finance Information.

About MoneySavingExpert.com

MoneySavingExpert.com is the UK’s biggest consumer website dedicated to saving people money on anything and everything by finding the best deals, beating the system and campaigning for financial justice. It's based on detailed journalistic research and cutting edge tools, and has one of the UK's top 10 social networking communities.

During November 2016 MoneySavingExpert had 16.9 million users visiting the site 31.4 million times, and looking at over 78.8 million pages. Over 12 million people have opted to receive our free weekly email and more than 1.6 million users have registered on the forum.

December 2017

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