We have a quick update on Martin Lewis (the guy behind MoneySavingExpert.com) and his enquiry into the recent changes made to student loans for you.
We told you just before Christmas that Martin had hired a legal team to investigate whether or not changes to the repayment threshold, as announced by Chancellor George Osborne in his Autumn Statement, were, in fact, legal.
Just in case you missed this…back in November, George Osborne revealed that the earnings threshold of £21,000 at which graduates must begin to pay back their loan would be frozen for five years. That sounds like good news right? Not quite. What it means is that student who have paid the higher course fees of £9,000 a year, which came in September 2012, will actually face higher repayments, as the income threshold will not match increases in average earnings.
The Treasury said that the freeze would be backdated to include the terms of loans to student who started in 2012 and, in some cases, graduated this year. The Institute for Fiscal Studies (IFS) estimates that this retrospective change would mean that an average graduate would pay back about £3,000 extra once you factor in interest, because they’ll be paying back for longer, while disadvantaged students would be even worse off. The government had previously told people that the income repayment threshold would increase annually from April 2017, in line with real wage increases.
On Friday the founder of the MoneySavingExpert site, wrote a damning open letter to the Prime Minister voicing his concern over the legality of the government’s decision to make such retrospective changes the terms of student loans and asked him to take ‘a personal interest’ in the situation.
In the letter Lewis called the move ‘disgraceful’ and said it goes against ‘all the principles of good governance.’ He went on to say ‘I’ve already hired lawyers to look into whether a legal challenge is possible, but this is just as much a moral issue as a legal one. A retrospective change will destroy any trust current and future generations can have in the student finance system, and perhaps, even more widely, in the political system as a whole.'
Lewis, who is also the former head of the Independent Taskforce on Student Finance Information, addresses the Prime Minister directly in writing, saying:
‘The decision to backtrack on this is hugely damaging. It means many lower- and middle-earning graduates will repay thousands more over the life of their loans.’
‘However, even more important than the additional cost is the message this sends. The regulator would not allow any commercial lender to make a change to its terms this way. It s therefore surely wrong for the Government to do so.’
‘…present and future generations must be able to trust the Government to keep its word on student finance.’
Lewis is right, it is an issue of trust first and foremost, those of us who took out student loans signed up to specific terms and conditions in good faith. Last week the government also made moves towards axing student maintenance grants for good, meaning that students from lower income backgrounds will graduate in more debt than those who are able to get help from their families throughout their degree.
A spokesperson from the Department for Business, Innovation & Skills told The Debrief,
‘Students do not have to pay anything back until they are earning £21,000 and will only pay back 9 per cent of earnings above that amount. While the economic recovery is underway, graduate earnings haven’t risen as they were expected to and we consulted on the change with the sector and student organisations in the summer.’
We have contacted the Prime Minister’s office for a comment.
You might also be interested in:
Follow Vicky on Twitter @Victoria_Spratt
This article originally appeared on The Debrief.