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.

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.