Jim Shannon
Main Page: Jim Shannon (Democratic Unionist Party - Strangford)Student Loan Repayments
Jim Shannon Excerpts
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.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I have absolutely no problem with the hon. Gentleman intervening, but he should wait a little longer, rather than walking into the Chamber to intervene. Come on, Mr Shannon—the night would not be the same without you.
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.
Jim Shannon
In my intervention on the hon. Member for Walsall South (Valerie Vaz), I mentioned that the system we have in Northern Ireland is much more manageable than the system here on the mainland. Has the Minister had a chance to look at how the Northern Ireland example works and gives a better response to students when it comes to repayment?
Joseph Johnson
Yes, of course. Higher education has been devolved in Scotland and Wales since 1999 and in Northern Ireland since 2007, and we continue to look at how other nations within the United Kingdom choose to allocate public funds to the higher education system to see what lessons are to be learned from that.
In England, we now have a fair and sustainable system of funding our higher education system. The £21,000 threshold is higher than the one we inherited from Labour, and is fairer on lower earners. The system is also more progressive. Interest rates after graduation increase with income so that higher earners repay more. For someone earning £21,000 or less, the interest rate is set at RPI—the loan balance does not increase in real terms. For graduates who earn more than this, the interest rate increases to a maximum of RPI plus 3%. It is only fair that the graduates who have benefited most from their education should pay the most back into the system.
Student loans are very different from a mortgage or credit card debt. Repayments are determined by income, not the amount borrowed. Graduates are protected; if at any point their income drops, so do their repayments. The loans are income-contingent, so borrowers will repay only if they earn above the threshold, and, as I said, the loans are written off after 30 years, meaning that many graduates will not repay the full amount. This is a crucial part of the taxpayer’s investment in our country’s skills base.
Our approach is based on the fundamental principle that a borrower’s contribution to the cost of their education should be linked to their ability to pay. Graduates generally benefit from higher earnings than those who do not go to university, and we must ensure that we maintain a fair balance between taxpayers and graduates in the costs of higher education.
It is clearly important that students know what they are signing up to when they agree to take out their loans. All students are provided with clear information to help them understand what financial support they may be eligible for, as well as the interest rates and the repayment terms that will apply. They must also confirm that they understand the information before they are granted the loan. All of the information that the Student Loans Company provides to students is reviewed regularly to ensure that it is both accurate and accessible.
Let me turn to the threshold freeze, which the hon. Member for Walsall South has mentioned. To put higher education funding on to a more sustainable footing, we must ask graduates who benefit from university to meet more of the costs of their studies. It is clear that graduates benefit hugely from higher education. On average, graduate earnings are much higher than those of non-graduates. In 2015, graduates’ salaries averaged £31,500, compared with a non-graduate average salary of £22,000. The only alternative to asking higher-earning graduates to support higher education is to ask the taxpayer, who on average will earn much less than those graduates.
We did not take the decision to freeze the repayments threshold lightly. We consulted on the changes before they were announced last November and conducted a full equalities impact assessment. The changes will mean that graduates earning more than £21,000 will repay about £6 per week more than if we had increased the threshold in line with average earnings. The threshold is higher in real terms than the one we inherited from Labour, meaning that graduates under this system keep more of their earnings before they start to repay.
A sustainable student finance system enabled us to abolish student number controls, lifting the cap on aspiration and enabling more people to receive the benefits of a university education. That is essential if we are to maintain our place as a country with a modern, highly skilled economy. We still send proportionately fewer people to university to study at undergraduate level than our main competitors. Between now and 2022, more than half of job vacancies will be in occupations most likely to employ graduates. If we are to continue to grow our economy, we must equip our young people with the skills and qualifications they will need to fill those roles.