Economy 14 June 2013 Spot the difference: pensions vs student loans It's only OK to retroactively change a deal when it affects young people. Sign UpGet the New Statesman's Morning Call email. Sign-up The Guardian's Aditya Chakrabortty and the False Economy network have a massive scoop this morning. A secret government report from 2011 proposes retroactively changing student loan agreements to force pre-2012 graduates to pay more for their education: At the moment, the cap on student debt taken out before 2012 keeps repayment rates at 1.5%. Lifting it would mean a rate of 3.6%, in line with RPI in March 2012. One indicative calculation suggests that an employee on £25,000 a year, with £25,000 of undergraduate loans taken out before 2012, could work until retirement without ever paying off their debt if the interest rate cap were removed. Somewhat astonishingly, the report also contains a "script" for ministers to push the policy: "We all live in difficult times," they suggest ministers argue. "You have a deal which is so much better than your younger siblings (they will incur up to £9,000 tuition fees and up to RPI+3% interest rates)". Needless to say, the report does not address the fact that the ministers' generation had a deal which is considerably better that either younger or older siblings. There's an element of sleight of hand at play here. Since the actual fees are not retroactively raised, the government would be able to argue that it's not really changing all that much, just the terms of repayment. But student loans are already basically taxes in how they're repaid. What this will do in that assessment is extend the length of time which those taxes are paid – in some cases, right up until the 25-year cut-off, at which point the outstanding debt is wiped away. The reason why the change is so remarkably unfair is because of its retroactive nature. A cohort of students decided to go to university based on the deal that they would repay loans at the lower of 1 per cent above the Bank of England base rate or RPI. If that weren't the deal at the time, it's a fair bet a number of people might not have decided to get themselves into around £20,000 of debt. There's a certain amount of fun to be had comparing the proposals to the reaction to Labour's markedly less radical suggestion that pensions count as welfare spending, and might need to be capped if welfare spending as a whole grows too large. That is not a particularly bold statement. As Ian Mulheirn of the Social Market Foundation has showed, given the rate at which pension liabilities are growing, just to keep total expenditure flat would require massive cuts to every other spending program. Nonetheless, it's led to comments like this, from the National Pensioners Convention: Ed Balls has made a fundamental error of judgement in suggesting that state pensions are just another benefit in the general scheme of welfare spending. Everyone knows that you only receive a state pension if you have paid national insurance for at least 30 years. This contributory principle means that it’s not a benefit, but an entitlement. Interestingly, no-one brings up the same point when contributory JSA is cut, a benefit which also relies on NI contributions. But the larger point is that the contributory principle says nothing about the level of benefits. It may well be a terrible idea to cut pensions, for exactly the same reason that it's a terrible idea to retroactively increase student loan payments: people make spending plans spanning decades based on these figures, and a cut can wreck those plans at a time when there's no chance to rescue them. (Of course, that objection doesn't quite hold water in the case of pensions, which have, thanks to the Government's "triple lock", increased in present value significantly. Removing the triple lock could not irreparably damage anyone's long term plans) But young people are easier to screw over than old people. And divide and rule – pitting one cohort of young people against another – makes it even easier still. Here's a better idea for funding universities: don't scrap a tax which brings in billions of pounds from people who can overwhelmingly afford it, and then complain that the one generation which actually paid for their university education should pay more. › The US is about to arm the Syrian rebels - it's decision time for Cameron 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. Subscribe To stay on top of global affairs and enjoy even more international coverage subscribe for just £1 per month!