Lots of graduates will never pay off their loans, which is the point

Graduating into a recession is hard; at least you can not pay your loans until you earn a bit.

The Telegraph reported yesterday that "at least 40 per cent of student loans will never be repaid":

Around four in 10 graduates will have their student loans written because they will never earn enough to pay them off, researchers claim.

At least 40 per cent of the cash borrowed by students will never be repaid - a figure far higher than Government estimates have previously suggested.

Ministers had previously believed that around one third of the total students loan bill would be lost as those students fail to make enough money to pay it back.

However, leading university vice-chancellors, who carried out the study for the Institute for Public Policy Research, suggest that the total would in fact be closer to 40 per cent.

This is the second volley I've seen in what looks like a campaign to justify raising the cost of education without raising the actual tuition fees. The first came earlier this month, as the Guardian reported on moves to lower the level at which students would have to start repaying their loans.

Here's what's happening. Tuition fee loans are paid by the Government to the universities; maintenance loans are paid by the Government to the students. The students then pay the loans back, with interest – currently set at RPI plus 3 per cent – until either they have been paying for thirty years, or they have fully paid off the loan. The payments are 8 per cent of income above £21,000, a threshold which was originally planned to rise with inflation, but now looks likely to stay the same in nominal terms, thus increasing the number of graduates having to pay.

A subset of students will, therefore, not fully pay off the loan. This has always been known; the problem is that the initial calculations incorporated the same level of hopeless economic optimism as all the other Government departments (or, to put a more partisan spin on it, the initial calculations did not take into account the fact that the Government's austerity programme would smother the recovery in its cradle). Which means that, rather than a third of students not expected to pay off their loans in full, it is now four in ten – because fewer graduates are employed, and those which are are earning less.

The IPPR report which sparked the Telegraph's piece suggests that one way to deal with the problem is:

The creation of a new generation of cut-price degree courses priced at £5,000-a-year – significantly less than the current £9,000 maximum – for “stay-at-home” students to cut down on the amount of money being loaned by the Government.

The idea is that of students take these courses, then they could be barred from taking out maintenance loans, cutting the overall amount borrowed substantially. Of course, the university would still have to work out how to save £4000 on the teaching of a "stay-at-home" student.

It is clear that the complete mismanagement of the tuition fee increase by this government has left a black hole in the higher education sector's finances. But every suggestion as to how to manage that so far involves putting the burden on students and graduates – and even then, on only the graduates who started university in 2012 or later, who have already paid three times more that the students who immediately preceded them.

In the end, what's happened is that this generation of graduates is experiencing grave misfortune, with the highest levels of youth unemployment since records begin and a prolonged decline in real wages; that misfortune leads to the expectation that record numbers of them will, in essence, default; and much of the response is based around finding ways to extract more money from them anyway.

IPPR's proposal is better than most, in that it is at least looking for ways to save students money; but it still leaves them picking up the tab for the Government's incompetence.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Will Euroscepticism prove an unbeatable advantage in the Conservative leadership race?

Conservative members who are eager for Brexit are still searching for a heavyweight champion - and they could yet inherit the earth.

Put your money on Liam Fox? The former Defence Secretary has been given a boost by the news that ConservativeHome’s rolling survey of party members preferences for the next Conservative leader. Jeremy Wilson at BusinessInsider and James Millar at the Sunday Post have both tipped Fox for the top job.

Are they right? The expectation among Conservative MPs is that there will be several candidates from the Tory right: Dominic Raab, Priti Patel and potentially Owen Paterson could all be candidates, while Boris Johnson, in the words of one: “rides both horses – is he the candidate of the left, of the right, or both?”

MPs will whittle down the field of candidates to a top two, who will then be voted on by the membership.  (As Graham Brady, chair of the 1922 Committee, notes in his interview with my colleague George Eaton, Conservative MPs could choose to offer a wider field if they so desired, but would be unlikely to surrender more power to party activists.)

The extreme likelihood is that that contest will be between two candidates: George Osborne and not-George Osborne.  “We know that the Chancellor has a bye to the final,” one minister observes, “But once you’re in the final – well, then it’s anyone’s game.”

Could “not-George Osborne” be Liam Fox? Well, the difficulty, as one MP observes, is we don’t really know what the Conservative leadership election is about:

“We don’t even know what the questions are to which the candidates will attempt to present themselves as the answer. Usually, that question would be: who can win us the election? But now that Labour have Corbyn, that question is taken care of.”

So what’s the question that MPs will be asking? We simply don’t know – and it may be that they come to a very different conclusion to their members, just as in 2001, when Ken Clarke won among MPs – before being defeated in a landslide by Conservative activists.

Much depends not only on the outcome of the European referendum, but also on its conduct. If the contest is particularly bruising, it may be that MPs are looking for a candidate who will “heal and settle”, in the words of one. That would disadvantage Fox, who will likely be a combative presence in the European referendum, and could benefit Boris Johnson, who, as one MP put it, “rides both horses” and will be less intimately linked with the referendum and its outcome than Osborne.

But equally, it could be that Euroscepticism proves to be a less powerful card than we currently expect. Ignoring the not inconsiderable organisational hurdles that have to be cleared to beat Theresa May, Boris Johnson, and potentially any or all of the “next generation” of Sajid Javid, Nicky Morgan or Stephen Crabb, we simply don’t know what the reaction of Conservative members to the In-Out referendum will be.

Firstly, there’s a non-trivial possibility that Leave could still win, despite its difficulties at centre-forward. The incentive to “reward” an Outer will be smaller. But if Britain votes to Remain – and if that vote is seen by Conservative members as the result of “dirty tricks” by the Conservative leadership – it could be that many members, far from sticking around for another three to four years to vote in the election, simply decide to leave. The last time that Cameron went against the dearest instincts of many of his party grassroots, the result was victory for the Prime Minister – and an activist base that, as the result of defections to Ukip and cancelled membership fees, is more socially liberal and more sympathetic to Cameron than it was before. Don’t forget that, for all the worry about “entryism” in the Labour leadership, it was “exitism” – of Labour members who supported David Miliband and liked the New Labour years  - that shifted that party towards Jeremy Corbyn.

It could be that if – as Brady predicts in this week’s New Statesman – the final two is an Inner and an Outer, the Eurosceptic candidate finds that the members who might have backed them are simply no longer around.

It comes back to the biggest known unknown in the race to succeed Cameron: Conservative members. For the first time in British political history, a Prime Minister will be chosen, not by MPs with an electoral mandate of their own or by voters at a general election but by an entirelyself-selecting group: party members. And we simply don't know enough about what they feel - yet. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.