Student loans: suggestions, not criticisms


During a discussion of the recent news that many graduates will have to continue student loan repayments well into their fifties, BBC One Breakfast presenter Charlie Stayt suggests that “it’s hard to draw any other conclusion other than that this is a system that doesn’t work”. Even if his conclusion is in fact correct, to claim that it is obviously the case is not. While the student loan system has fallen foul of dishonesty and incompetence from the government, the surrounding debate suffers from obfuscation from the coalition’s opponents. The issues with the scheme are frequently conflated and confused, harming the perception of university by prospective students, and hindering the pursuit of any feasible alternatives.

The problem of graduates being burdened with so much debt that they never fully pay it off provokes reasonable anger and frustration. However, it is important to be clear over exactly why this fact is so unsavoury. New governmental statements have shown that 45% of graduates will now ‘not earn enough to repay their student loans.’ This figure is clearly drastically higher than the government’s projection of 28% made in 2012, and dangerously close to the 48.6% threshold above which the government will actually be losing more money than it gained from raising tuition fees to £9000.

This first issue, then, relates to the fact that the scheme is much less desirable in terms of the national budget than how it was originally presented. This is clearly a mark against the change, and a failure at the hands of the government should that figure rise above 48.6%. Yet the same data is used to demonstrate an entirely different point. Many graduates not paying back their loans is simultaneously used as evidence that the system is unfair, that it puts too much financial strain on graduates, and that our generation will henceforth be ‘lost and indebted.’ The main problem is that the government designed the system with an optimistic range of graduate earnings in mind; or more specifically, a range of graduate earnings ill-suited to a post-recession economy. Thus, since many graduates’ pay rises are not substantial enough to cover the higher payments as well as interest on the debt, they are forced to continue paying until they have, in some cases, paid double what they originally borrowed.

Yet here the arguments against the scheme tie themselves in knots. The scheme is criticised, rightly, for not raising as much money as it said it would. It is criticised, rightly, for being too harsh on graduates and poorly designed so that many struggle with unnecessary debt. However, the two objectives premised here, that graduates be released from financial burden and that the scheme raise more money, are to some extent exclusive. Moreover, there is a distinct lack of helpful suggestions for reform, other than the implication that graduate debts should be written off, and that the state should return to providing grants for universities. Assuming that this old alternative is preferable is a mistake.

It has been claimed that the system works like a ‘graduate tax’ (not to be confused with the actual system of taxing graduates, with no fixed value loan, as proposed by Labour) The rhetoric is used pejoratively, relying on a supposed entitlement to education. However, there is a great deal to be said for ‘taxing’ students for their learning. Firstly, conventional economic wisdom tells us that education works as a signal for graduates in the labour market – they choose to ‘buy’ education in order to show their desirability as an employee, and therefore still end up better off overall. This is old news, and while sometimes contested, is generally accepted. Therefore people simply believe that the trade-off should be more obviously in favour of obtaining a degree.

Another, stronger point though is that wording the problem of repayments in the manner we see so often in the media – with the focus on the cumulative amount of debt that paid – misrepresents the way the debt affects people. Professor Nick Barr of LSE argues that “it’s exactly tailored to each individual’s earnings, and therefore it’s not something that harms people. It’s what gives them the opportunity to go to university.” Essentially, gradual alterations to total income don’t actually affect a consumer’s welfare all that much. Though looking at the total debt paid makes it seem like a horrible burden, gradual payments mean that graduates shouldn’t feel the costs from week to week. A healthy scepticism over the extent of application of this argument is helpful, but the point still holds.

Despite all this, for many, the nail in the coffin for the current system is that it is unequitable. This is indeed the case – a brief look at the figures shows that ‘average’ graduates will pay more than their lower- and higher-paid counterparts, due to the drawn-out addition of interest to their payments. This is unfair and will drive interest away from socially crucial but lower-paid jobs.

But none of this is to say that the current student loan system is conceptually defunct. What is more important than either side winning the argument is concerted reflection on what can be done to improve the situation. The most important fact about student loans is that the only alternative ever seriously voiced is to fund university attendance through national taxation. Hugh Muir of the Guardian writes that “education is a communal good, an economic necessity and a collective responsibility too important to be hived off to the markets.” Yet he immediately claims that this kind of good should be paid for by tax. When it is proving so difficult to choose between funding various public institutions, should it be so outrageous that education, which provides financial benefits to those who receive it, be paid for by those beneficiaries? The graduate tax proposed by Labour also affects graduates. Does Muir hate the markets or the fact that graduates are being hit more? If the repayment system was reworked to make it more equitable and thus ensure more graduates ended up fully repaying their debts, would he prefer it?

We need to think seriously about which points we dislike the most about the current system, and structure the debate, so that progress is made. Students, too, can play a role in this, and proposals will serve better than protests in this regard. The debate has become muddied by a number of salient points all used simultaneously, so that even those on the same side are often talking cross-purposes. Should the 48.6% threshold be crossed, the government’s policy will likely, and rightly, be deemed a significant mistake. But what will, and should, take its place remains dangerously uncertain. And finally, while the current system remains in place, we need to ensure prospective undergraduates are not deterred from coming to university – if hyperbolic protest continues at the expense of accurate analysis, we run the risk of excessively driving away new potential from our education system.


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