When Student Loans were rolled out in Britain, initially to replace Maintenance Grants and later to cover university fees, Conservative, New Labour and Liberal Democrat ministers all promised that, though the state reserved the right to retrospectively alter the terms of their loans, they would never do so. This week, the Coalition Government was forced to reveal secret plans it is developing to raise interest rates on loans issued in 1998-2012, in order to sell £45 billion of loans on the global financial markets. This will create a new market in derivatives and credit default swaps- products closely associated with the 2007 crash.
Currently, graduates pay interest at the lower of two rates: the Bank of England base rate (currently 0.5%) or the Retail Prices Index inflation measure, both plus one per cent. This practice deters potential investors, who are worried that a future loose monetary policy would see high inflation whittle away returns. After all, a lot can happen in the 30 year period that Student Loans repaid over.
The plans, which are oxymoronically termed ‘Project Hero’, would see ministers pursuing the argument that, as younger graduates are paying RPI+3% on tuition fees of £9,000 (an interest rate which is very anti-competitive), it is only ‘fair’ that older graduates pay more in the age of austerity. While such a sacrifice by graduates means no change in the rate of repayment, which is 9% of any income a debtor earns above £15,000 a year, it does mean that they’ll pay for longer.
The legality of the proposals is in doubt. Whatever the conditions the Government claims to have imposed on Student Loans are, there remains other legislation which may render any alteration of terms invalid. A court case is inevitable, in any case. And regardless of the legality, what of the morality of it? Morality appears to be a novel concept to the Government, but an effort should be made by them to observe it. Is it right to cheat large numbers of people of a considerable percentage of their incomes so as to satisfy highly profitable multi-billion pound businesses that they can make a quick buck?
There is only one way to describe Project Hero: theft, plain and simple. Whilst many would agree that it’s not fair that those who attended university in the past 15 years will pay less for their degrees than the current generation, the principle also applies to those who didn’t pay anything at all. And yet there are no calls for graduates born before 1974 (and thus would have reached university age when grants, not loans, were made) to pay any extra. None of the ministers involved in the plan paid a penny for their higher education. Some have suggested that if the Coalition was genuinely concerned about fairness, they’d either impose a retrospective tax on all graduates, or follow the most justifiable course and not impose a rise in tuition fees.
In light of such strong arguments, it is probably unlikely that the Government’s planned justifications for its policy will carry much weight with the public. The question that observers are asking is if it will proceed with this policy, or choose alternative means of reducing net expenditure on the universities? Already, businesses are being encouraged to apply for degree-awarding powers in an effort to increase ‘competition’ in the higher education sector. The first of these is Pearson, (which owns Edexcel, Penguin Books and the Financial Times) which has established a College offering degrees in Business and Enterprise. The key benefit of the concept from the Treasury’s perspective is that the fee loans are just £6,500 per year. As most students will never clear their loan by the end of their 30 year term, this means that the amount that the Treasury writes off on smaller loans is greatly reduced compared to those of £9,000 a year. Furthermore, the Treasury must pay fees to universities upfront on behalf of the student- so the lower the fee, the less money must be found this year.
Business universities may or may not be a good idea. But giving current students the choice to study at them is a fairer way of saving state funds than chasing graduates for more money than was originally agreed.