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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This is no time for Labour to turn its back on free trade

The Brexit negotiations centre on a trade deal. But Labour is divided on the benefits of free trade. 

On Wednesday 29 March, Theresa May will trigger Article 50 and the process of leaving the European Union will begin. The Prime Minister and David Davis, the Brexit Secretary, have made a commitment to “pursue a bold and ambitious free trade agreement with the European Union.” On 24 January in Parliament, Davis went even further and committed the government to negotiating “a comprehensive free trade agreement and a comprehensive customs agreement that will deliver the exact same benefits as we have".

As Labour’s Shadow Brexit Secretary, Keir Starmer set out earlier this week, it is critical that we hold the government to account on Davis' pledge. But it is also crucial that the Labour movement gets to grips with the new reality of trade deals with the EU and other countries, resists any knee-jerk protectionist instincts and makes the right progressive demands on workers’ rights and environmental and consumer protections.

The successful negotiation of a free trade deal with the EU is essential. Together, the remaining 27 EU countries are by far and away our largest export market. And we import more from the EU than from any of our other trading partners. A UK-EU trade deal will therefore be the single most important free tree agreement the UK will ever have to strike, and if it covers both goods and services it will also be the most comprehensive deal that any country has ever negotiated with Europe.

The stakes are high. Our EU membership has given us unfettered access to the single market which is so much more than a free trade deal. It is a vast, integrated factory floor across which goods conform to the same regulations and standards. At the border with the EU, goods are not subject to customs duties, onerous rules of origin or time-delaying checks. Given that services make up 80 per cent of our economy, the government must seek much greater access for our services than the EU has been willing to grant to other countries in the free trade deals it has negotiated so far.

Retaining the exact same benefits is going to be a huge challenge. Indeed, there is no guarantee that such a deal will be achieved, particularly within the two-year period set out under Article 50. The government has already struck the wrong tone with our European partners. The Foreign Secretary seems intent on needlessly upsetting them. The PM parrots the mantra “no deal is better than a bad deal”, effectively threatening to walk away. It is crucial that a new positive dynamic is established to create mutual goodwill and help deliver an ambitious UK-EU trade deal.

There is a substantial risk that the government’s mishandling of Brexit could see the UK fall out of the EU with no trade deal at all, thereby falling back on to World Trade Organisation tariffs and barriers. Furthermore, we would do so with none of the technical agreements in place - such as financial services equivalence agreements and mutual conformity of assessment agreements - that other major countries around the world enjoy. As Sir Ivan Rogers, the former UK Permanent Representative to the EU, recently asserted in his evidence to the Exiting the European Union Select Committee, on which I sit, “no other major player trades with the EU on pure WTO-only terms”.

The Prime Minister asserts that “no deal is better than a bad deal”, but it is increasingly clear that no deal is the worst possible deal. It would do considerable damage to our economy. And yet, we have learnt that Cabinet members have been told to plan for the no deal scenario. In recent weeks, Davis has admitted to the Brexit Select Committee that the government has conducted no analysis of what this would mean for the British economy. Labour will fight strongly against such a reckless step which would hit jobs, living standards and growth.

As Starmer said in his speech to Chatham House, the government must agree a strong and collaborative relationship with the EU. If it does not, it will not be acting in the best interests of the UK and it will not have Labour’s support.

I believe that Labour must champion the right free trade deal with EU over the next two years. We must demand that the government accepts meaningful transitional arrangements that will be necessary to successfully complete such negotiations. A successful EU-UK deal could then become a template for future agreements. After all, our country’s future economic prosperity rests on striking free trade deals not just with the EU but with other G20 economies and developing countries around the world. So Labour must become a champion for striking progressive free trade agreements.

Yet this poses a challenge to the Labour party. Within our movement, there is currently a heated debate about what our approach to trade should be. This was exposed by the recent votes in the UK Parliament and European Parliament on the Comprehensive Economic and Trade Agreement (Ceta) between the EU and Canada when Labour MPs and MEPs were divided. I fear Labour risks sliding into a dangerous position: one of perpetual opposition to trade deals that puts us the wrong side of the public interest and history. Globalisation cannot be stopped but it can be regulated. So the real challenge is how to make it work for people so that they can benefit from an increasingly globalised world.

No trade deal is ever perfect. Each is inevitably the result of negotiation and compromise. However, if we followed the advice of some on the left and refused to ratify any trade deals, no matter how progressive, the UK would be isolated, poorer and left behind. Of course we need assurances that public services will be safeguarded, that workers’ rights are protected and environmental and consumer protections are in place in any deal, but we also need to open up markets. Trade deals are not the threat to public services that some claim, but a failing economy facing trade barriers that puts a squeeze on the public finances is a clear and present danger.

Labour’s values place us in a strong position to lead the way in rejecting the Tory right-wing approach of unfettered globalisation, a race to the bottom and unchecked markets. We must show that we are the party of work and workers, looking to both create jobs and protect the rights of workers in our future trading relationships. Our internationalism can be expressed by establishing progressive global rules and opening up markets, using trade to bind nations together in a way that prevents conflict and opens minds.

As these historic negotiations begin, Labour must hold the government’s feet to the fire and champion regulated and progressive free trade deals with the EU and other countries. Turning our backs on properly regulated free trade will not further social justice or economic prosperity on our shores, it will only serve to do harm to both. Labour has to reject the defeatism of protectionism and instead embrace progressive free trade agreements if we are to truly succeed in building a fairer and more prosperous economy for the people we represent.

 

Emma Reynolds is MP for Wolverhampton North East and former shadow Europe minister. She sits on the committee for exiting the European Union.