Student Loan Repayments
Debate between Jim Shannon and Valerie Vaz
Valerie Vaz (Walsall South) (Lab)
This debate comes against the backdrop of the tumultuous events that took place in the UK following the referendum last Thursday. I applied for the debate before that time, so I am grateful I was granted it and I am here today. I also want to thank the Library for providing timely responses to some of the queries I had.
Just before the historic vote on the EU, students were receiving statements of their loans with a total figure that left many of them in shock. On a loan of £27,000, the figure was £45,000. I want to acknowledge the fact that young people between the ages of 18 and 25 voted overwhelmingly—by 75%—to stay in the EU, so we need to make sure we do not forget them and their future.
I want to focus on the regulations, the threshold and concerns about the contract. The regulations that brought in the changes to the threshold and interest rates were enacted in 2012. They were the Education (Student Loans) (Repayment) (Amendment) (No. 2) Regulations, which came into force in June 2012, so the first students to take up the loans affected by these regulations have just graduated. In those regulations tuition fees were trebled, a higher threshold of £21,000 was established, above which the loan had to be repaid, and a new maximum rate of interest for the loans was set, using the retail prices index plus 3%. Not content to treble tuition fees, the Government in the summer Budget of 2015 froze the threshold of £21,000. I shall focus on that threshold.
In November 2010 the then Minister, David Willetts, made a statement in which he said:
“We will increase the repayment threshold to £21,000, and will thereafter increase it periodically to reflect earnings. The repayment will be 9% of income above £21,000 . . .raising the threshold will reduce the monthly repayments for every single graduate.”—[Official Report, 3 November 2010; Vol. 517, c. 924.]
Then in July 2015 the Government consulted on freezing the repayment threshold. In November 2015 the responses showed that 84% were against freezing the repayment threshold for all post-2012 borrowers, but the Government went ahead against the evidence to freeze the repayment threshold until April 2021.
Why did the Government do that in the face of all the evidence? Is that not a prima facie case of misleading Parliament? In his statement Minister Willetts said that he would increase the threshold, yet the Government acted against all the evidence and the consultation responses. The Government’s own figures on the repayments show the inequity of this. The new scheme is far from progressive, as some Ministers claimed. Graduates earning £21,000 to £30,000 will have to pay £6,100 more, those earning over £40,000 will pay only £400 extra, and those on £50,000 will pay only £200.
Jim Shannon
You are most kind, Mr Deputy Speaker. I spoke to the hon. Lady beforehand. I want to put on record the fact that in Northern Ireland loans begin to be paid back when the student enters employment and earns more than £17,335 a year. The interest rate for loans is currently 1.5% and the more a graduate earns, the greater the proportion of their loan they repay, ensuring that those who benefit most from their degree pay the most, and those who do not benefit as much are not unreasonably punished for it. Does the hon. Lady agree that perhaps the Minister should look at the system that we have in Northern Ireland, which seems to be fairer?
Valerie Vaz
I thank the hon. Gentleman for his intervention. I can say in his defence that most of us were taken by surprise that the Adjournment started so early. I agree with him that the Northern Ireland system seems to be much fairer.
I do not call the figures that I have just given progressive, and nor does the Institute for Fiscal Studies, which found that the impact of freezing the threshold was that the largest increase as a proportion of earnings was among lower earners. Can the Government explain why they have chosen to make the student funding system less progressive by removing the central elements of the 2012 reforms?
What of women, black, Asian and minority ethnic and disabled graduates? They are most likely to be on salaries in the region of £21,000 to £30,000. The Government have acknowledged that. Let me give an example. In the 2013-14 cohort, 8,000 more women than men were paid in that range six months after graduation, and 51% of BAME graduates were employed on salaries in that range, compared with 45% of their white graduate counterparts. What measures have the Government implemented to mitigate the disproportionate effect on those on low incomes, women, disabled graduates and BAME graduates? Those groups earn less than other graduates, so they are more likely to be middle earners—those who face the largest absolute increase in repayments.
What of prospective students in the nursing profession, who could be deterred by high levels of debt? The Royal College of Nursing is concerned about the change to a loans-based system, which will leave many nursing students with debts of £60,000 for a three-year degree. We are desperately in need of nurses from this country who are trained and qualified in this country.
The National Union of Students, which represents more than 95% of all higher education and further education unions and more than 7 million students, has expressed concerns. First, the repayment threshold will not increase in line with earnings, so students have to start repaying their loans on a lower income. Secondly, those on lower incomes pay more than they otherwise would. Thirdly, the NUS is concerned about the Government being able to change terms retrospectively and about the impact that that would have on existing borrowers, which the union says sets a terrifying precedent.