Economy 7 May 2013 Student loans in Britain are basically taxes – and universities want to raise them Pulling the rug out from under students. Sign UpGet the New Statesman's Morning Call email. Sign-up 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. › Windows 8 has upset a lot of people Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter. Subscribe For daily analysis & more political coverage from Westminster and beyond subscribe for just £1 per month!