In yet another U-turn on higher education policy, the coalition government has announced plans this week to abandon fines on graduates paying back their loans early under the new tuition fees system. Under the original scheme, after tuition fees had increased to £9000 per year, students paying off their loans early by returning higher than the minimum contribution per month would have been penalised by extra charges of up to 5%.
The initial reasoning given was that this would prevent rich graduates from unfairly avoiding large sums of interest by quickly paying off their loans. But the plans have now been abandoned; amidst government claims that it has been revealed that the penalties would actually have hit conscientious, middle-income workers, as it is in fact those earning only around £18,000 who are most likely to try to pay off their loans early. So far, so good. But the evidence on which this decision is apparently based comes from a report produced by think tank Centre Forum; a study on which we reported on 9th September last year, around the time the government was creating its tuition fees policy in the first place! As we reported at the time, prominent protesters and opposition figures were already vocally pointing out the results of the Centre Forum study, so if it were to have an impact on the decision to impose early-repayment penalties, it surely would have done so at the time.
This clearly indicates that the government has now decided to abandon repayment penalties for its own reasons, but is trying to use the report to increase public approval for its actions by implying that the decision is being made for the good of the middle-income earner.
A Conservative Policy in Disguise
Whilst the Centre Forum report pinpoints the median annual income of graduates trying to pay off their loans early at £18,400, this does not take into account family finances. So whilst the graduates themselves may be earning only a modest salary, it is still highly likely that many of those paying off their loans early might be receiving assistance from wealthy parents. This was heavily implied by University and Colleges Union secretary Sally Hunt, who angrily labelled the news “yet another policy designed to make life easier for the wealthiest in our society.”
A Helping Hand for the Rich
Another aspect not taken into account by the Centre Forum study is the profession of those paying off their loans early. Under the new system, the interest payable on student loan repayments will rise in accordance with graduate income. So a city banker whose wages will eventually soar to enormous figures would be very likely to try to pay off his student loan early during the first few years of employment whilst his income would still fall into the modest bracket described by the study. He would still then be avoiding steep rises in interest due later on when his salary increased. It is a mistake to over-simplify the situation by assuming that the £18,400 salary indicated by the study is a steady figure rather than an early point on a steeply increasing income curve. A worker on an income of £18,400 is much more likely to start contributing substantial early repayment sums if they are able to do so in the confidence that their salary is set to comfortably increase in the near future than one whose salary is likely to stay at that level for good.
So it seems likely that the Centre Forum report is being used as a smokescreen to make a conservative policy more palatable to a struggling public. Then what is the real reason behind the government’s U-turn on early loan repayments? Well, it was the Liberal Democrats, led by Vince Cable, who were initially so keen to impose the early repayment to penalise the rich if they tried to unfairly shrug off the full level of loan repayments. So it cannot be a coincidence that the withdrawal of the policy has come in the same week that the Conservatives have performed a reluctant U-turn on their veto of the appointment of Les Ebdon as the new director of OFFA, the university watchdog. Whilst Ebdon’s appointment will undoubtedly be welcomed by equal access campaigners, those with concerns over the government’s handling of higher education will hardly be reassured by the coalition’s apparently political horse-trading of policies.