Student loans in Britain are basically taxes – and universities want to raise them

Pulling the rug out from under students.

The Guardian's Anna Fazackerley reports that there is a growing push on the part of university vice-chancellors to increase the speed with which students pay back their loans. She writes:

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."

The problem with hurling around accusations of economic illiteracy is that Barr is using some sleight-of-hand himself.

The tuition fee system is, from the point of view of the student, an odd beast (it's almost as odd from the point of view of the university, but that's not the end under discussion here). Although it's sold as a "loan", it actually bears very few similarities with any other borrowing a graduate might do throughout the course of their lives, for one major reason: the loan gets wiped out.

Current graduates stop paying 30 years after they become eligible to repay; the lucky ones who took out loans between 2006/7 and 2012/13 stop paying even earlier. That, combined with the fact that the new loans charge interest rates 3 per cent above inflation – currently an eye-watering 6.6 per cent – means that a sizeable proportion of graduates will never pay off their loans. If you earn the UK average wage, of £26,500, from the year you graduate (and then get pay rises exactly in line with inflation), you will never pay it off. In fact, a few back-of-the-envelope scribbles show you need to earn almost £30,000 a year before you even start paying it down quicker than the interest increases it. And you'd need a wage of over £36,000 before you actually pay it off in the 30 year time limit.

Of course, most people's lives involve them earning more the older they get, so the rough calculations don't bear all that much relation to the real world. But it's enough to point out one thing: lowering the threshold at which people start "repaying" their loans doesn't mean they pay it off earlier; it means they pay more. That graduate on £26,500 for life would pay off a little under £15,000 of their £27,000 loan if the threshold was at £21,000, but they'd pay off almost £23,000 over the following 30 years if the threshold was dropped back down to £18,000.

All of which is to say that for a vast number of graduates, the "student loan repayment" is a tax, plain and simple. And that's OK (sort of): if you're going to make people pay for education, doing it through a tax isn't much different to doing it through a warped state-backed loan. But it does mean that mucking around with the thresholds like this isn't "hastening repayment", it's a tax increase on graduates.

The idea of a "generational conflict" comes up relatively frequently around conflicts like this, and one reason why the young are often on the losing side is that older Brits have the language of expectations and promises on their side; so it's "fair" to cut benefits in a way pensions never would be, because the elderly were promised those pensions.

But this is one where the promises were made to the young. When today's students went to university, they were promised that they would pay back their loans with income over £21,000, and that that would be uprated with inflation. Breaking that promise to deal with the fact that the government didn't cost its higher education plans properly would be disastrous.

How are vice-chancellors dealing with that? Subterfuge:

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."

If there's a better justification for teaching yourself the basics of finance, I haven't seen one.

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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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue