I return to the subject of this column published on October 15th: the student loans system; I concentrated then –as did most of my email correspondence- on the question of the level of fees and the debt with which students are left, but since the Chancellor’s decision to raise the income threshold from £21,000 to £25,000, below which no repayments are made, my correspondence has shifted to the question of the interest rate charged on loans.
My emails complain that the rate of 6% is ‘daylight robbery’, and that the extra money should have been spent reducing the interest rate for everyone with a student loan rather than raising the repayment threshold which only helps those who will be on incomes below it.
I give two answers. First, it is always best to concentrate relief where it is most needed and this is better done by raising the threshold to protect those on the lowest incomes. Second, the complaint betrays an ignorance of the student loan interest rate system (I don’t blame them for that, because it’s complicated, and it is complicated in order to be fair to students, very few of whom will be paying 6%.)
The Government introduced a new tiered rate of interest for students taking out loans from September 2012.
Those with incomes above the income threshold and paying-off loans taken out before 2012 (known as plan 1) will, for the current year (1 September 2017 – 31 August 2018), pay a rate equal to the retail price index (3.1%) -but subject to a low interest cap- which means that they will actually only pay 1.25%
For those who took out loans after the new system was introduced in 2012 (plan 2), interest accrues at a variable rate over the life of the loan dependent upon their level of income: while studying the interest rate added is RPI + 3%, when a student graduates however, and is earning under the income threshold the interest rate falls to RPI and when a student is earning over the threshold the interest rate starts at RPI and rises gradually back up to RPI + 3% only when a graduate is earning over £41,000 per year.
The intention of the scheme is to make repayments more progressive so that graduates earning more would repay more. The amount of interest charged therefore depends on the circumstances of the student, which is much fairer.
What we should not return to, is a system where opportunities are fewer, and where 18-year -olds who don’t go to university end up paying higher taxes to pay for the courses of the lucky few who do get a place at university.
That said, students do need to be much more forceful in demanding value for their money. An undergraduate complained to me recently that an effective lecturer and tutor on her course had been replaced by a dreadful one, I enquired as to what the students on the course had done about it collectively or individually, the answer was ‘nothing’. Well, nothing will come of nothing: They need to agitate about teaching standards.