Did You Know About These Changes To Your Student Loan?

Martin Lewis, the Money Saving Expert, has hired lawyers to check out the Chancellor's changes to student loan repayments

Did You Know About These Changes To Your Student Loan?

by Vicky Spratt |
Published on

Many of us graduated with a huge amount of debt, making the transition into adult life with it hanging over our bank balances and future earnings.

If you earn over £21,000 a year, then your repayments are automatically deducted when you get paid, before the money even hits your account. If you don’t earn that much, or you aren’t working, then you’ve probably received several letters from the Student Loans Company asking you where you are and what you’re doing.

If you went to university after 2004 then you were liable to pay up to a maximum of £3,290 a year and if you went after 2012, the maximum you could have to pay increased to £9,000 a year. Many people took to the streets in protest, but the fees have remained at that level since.

Do you actually know what you signed up for when you agreed to take out a student loan? Do you know exactly how much interest you’re paying? Do you know what the terms are? Do you follow the government’s budgets and autumn statements every year and listen to how they might affect you? Do you ever hold them to account when they make changes to the way it works? Do you know when they make changes?

Well, if you don’t, luckily Martin Lewis of moneysavingexpert.comdoes. In November, the chancellor George Osborne announced some changes to the way student loan repayments work.

Lewis has confirmed on Twitter that he has, in fact, hired a team of lawyers to investigate these changes. As part of last month’s autumn statement, Osborne revealed that the earnings threshold at which graduates must begin to pay back their loan (£21,000) will be frozen for five years, instead of raised in line with average earnings, as promised in 2010 when the government said that the threshold would increase annually from April 2017.

Now, that sounds like good news, right? But it’s not necessarily.

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.

Lewis explains why this is: ‘If you earn £22,000 and the threshold has increased to £22,000, then you’d have repaid nothing. But with it at £21,000 you’d repay £90 a year.’

And, because many, if not most, students won’t repay in full within the 30-year term of the loan before it’s written off, this means that those people could possibly repay £1,000s more in total before the loan is wiped.

As a result Lewis, the former head of the Independent Taskforce on Student Finance Information, has officially confirmed via his blog this week that he has hired a legal team to seek a judicial review on this.

The money expert told the Guardian: ‘It is fundamentally threatening any trust people have in the student finance system. It’s one thing to set up a system that’s unpopular, but entirely different to make retrospective changes that mean you cannot even rely on what you were promised at the time you started to study.

‘The fact that the chancellor didn’t even have the balls to put it in his autumn statement speech shows that he knew how unpopular it would be. If a commercial company made retrospective changes to their loan terms in this way they’d be slapped hard by the regulator.’

The changes were not included in Osborne’s speech to parliament but were, in fact, buried on page 126 of the autumn statement document.

On his blog, Lewis wrote that he felt ‘duty bound’ to take action. He added, ‘My view (and it may be nonsense hence why I’m engaging lawyers) is there are many areas of weakness in this announcement – primarily that this is an unfair change in contractual terms for students, one no commercial company would’ve been allowed to do.

‘It could’ve chosen to do this only for new starters, that would’ve been reasonable (I’m not saying I support it, just I wouldn’t have challenged it), but it didn’t.’

He has, understandably, received lots of support on Twitter from students and parents.

A spokesperson for the Department for Business, Innovation and Skills told the Guardian that the decision to make this change and freeze the repayment threshold, rather than stick to the original plan of increasing it every year, was basically because graduate earnings haven’t risen as expected (ie we’re not earning as much as they thought we’d be).

‘When the £21,000 threshold was set in 2010, assumptions had to be made about earnings growth between 2010 and 2016,’ the spokesman said.

‘While the economic recovery is underway, it is not yet fully reflected in earnings, so the threshold is higher in real terms than originally intended.

‘Making this change helps contribute to the current government’s debt reduction targets.’

Our student debt is basically seen as a resource by the government.

When changes like this are made, albeit it (kind of) publically, we don’t receive an email or a letter from the Student Loans Company letting us know, as we do from our bank when the terms of our overdraft or credit card change. It all feels a bit back door, a bit under the radar, doesn’t it?

When we haven’t been in touch with the Student Loans company to let them know that we’ve become unemployed or gone freelance, they’re ever so quick to write.

The best course of action you can take is to get to know your student loan. Stay informed. Read the small print. There are very good explainers on Lewis’s website which can help you understand your student loan and he has promised to keep his followers updated with the progress of his investigation via Twitter and on his blog.

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Follow Vicky on Twitter @Victoria_Spratt

This article originally appeared on The Debrief.

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