A Liberal Democrat proposal to impose penalties on graduates who paid off their student loan early has been scrapped by the Coalition government.
The Business Secretary Vince Cable, proposed the penalty system, which would only have applied to students in England. A 5 percent annual charge would have been levied on students who repaid loans early in a bid to make the system more progressive. The scheme could have cost graduates who paid off their loans within thirty years, thousands of pounds and was intended to prevent wealthier students from avoiding interest charges. However, government research has indicated that graduates earning around £18,000 per year are more likely to pay off their loans early than graduates in higher income brackets.
Martha Mackenzie, President of OUSU, said: “OUSU is generally very supportive of the principle that graduates should be able to pay off their debts early.” But she expressed dissatisfaction with the current system: “The introduction of a real rate of interest means that the faster you clear the debt, if you earn enough over a 30 year course to pay off the full loan, the less you will pay in total. Therefore we hope the government will introduce a system that does not result in those in very highly paid careers paying less than their peers who enter less well paid professions.”
Miles Coates, President of Oxford University Conservative Association, supported the Coalition’s scrapping of the proposal: “This is welcome news, particularly since research shows that those worst affected would be those earning £18,000. Penalising such people for being financially responsible is grossly unfair.”
However, Tom Adams Co-chair of Oxford University Labour Club disagreed with the abandonment of the scheme: “I support the idea of an early repayment penalty. It is important that those who come from wealthy families or go into high-paid jobs after graduation should not be able to end up paying significantly less than someone else because they can avoid interest rates by repaying early.”“This whole thing is another example of the ‘inconsistent mess’, as the University and College Union put it, that is the government’s higher education policy.”
The decision to drop the loan repayment scheme has come at a particularly crucial time. In September annual fees will rise to as much as £9,000 per year for many undergraduates whilst students will be offered loans of over £16,000 to cover the living expenses and fees whilst at University.