Student loans review won’t help those at university today

“That’s sooooo unfair!” The catchphrase of Harry Enfield’s comic creation Kevin the Teenager was resounding around our kitchen this week, as my stepson read about the government’s review of university funding and the student finance system.

Currently in his final year at university, he will have racked up student loan debt of more than £40,000 by the time he graduates. He is already hugely miffed that his older sister, who started university before the system changed in 2012, owes less than £15,000. She is also being charged a much lower interest rate than the 6.1 per cent he’s running up while studying.

So news that tuition fees and interest rates could potentially be cut in future made him howl. “How is this going to help people like me who have already paid through the nose?” he said, in slightly more expletive-strewn language.

In an attempt to answer this question, I lovingly read through all 49 pages of this week’s Treasury select committee report on the subject. But this point was not directly addressed — and I doubt it will be in the government’s year-long review of student finance either.

Theresa May, prime minister, this week acknowledged that the current set up is “one of the most expensive systems of university tuition in the world”. Currently, over eight out of ten graduates will never repay the full amount they have borrowed.

The scope of the review includes high interest rates on student loans (the Treasury select committee report strongly urged the government to reduce these) as well as tuition fees, the duration of the loan repayment period (currently, student loans are wiped after 30 years) and the salary threshold where repayments begin.

Having been frozen at £21,000 for many years — the unfairness of which sparked a campaign by Martin Lewis, the Money Saving Expert — the threshold will rise to £25,000 from April. Graduates repay a 9 per cent slice of their earnings above this level. This change will apply to all holders of post-2012 loans (also referred to as “Plan 2” loans).

It might, therefore, be logical to assume that any future changes to interest rates or the 30-year repayment duration would also be applied to all Plan 2 loans in future. But nobody I have spoken to this week holds out any hope of such changes being applied retrospectively — so don’t expect to receive a partial refund on your £9,250 annual tuition fees, kids.

Any A-level students thinking that it could pay to delay taking up a university place may also be wrongfooted. In a year’s time, we can expect the “interim report” to land, but there is no guarantee of what changes this might recommend, or how long it would take for them to be implemented.

Perversely, getting a raw deal is slightly easier to live with if you know that the people coming after you got a worse one.

My parents’ generation got a full grant for university. I had to take out a student loan. At the time, I thought this was so unfair. But I didn’t have to pay any tuition fees. My brother, who went to university one year after me, had to fork out £1,000 a year. He was seething about that — but it wasn’t long before new students (including my stepdaughter) had to pay £3,000 a year. Fees jumped up again in 2012, and today stand at a “maximum” of £9,250.

The Treasury select committee report criticises the government’s “naive assumption” that fees would not “universally increase” to the maximum level, as they have done. It also recommends that maintenance grants are reintroduced, and criticises the basic unfairness that the highest-earning graduates “may in reality pay less over their lifetime than lower-earning graduates as they can repay the loan quicker, and therefore pay less interest”.

A sobering observation, but one that provides scant hope or comfort to the post-2012 university cohort whose younger siblings could get a better deal than they have.

As if current undergraduates didn’t have enough to moan about, on Thursday, university lecturers began strike action over planned pension changes they think are deeply unjust. Looking at what they earn compared to the extortionate salaries extracted by some university vice-chancellors, I am not surprised.

There are fears that the disruption could extend into the summer examination period. The FT also thinks this is unfair — a leader this week argued that affected students should receive a rebate on their tuition fees.

But the more you look at the current student finance system, the more problems you find. A mature student friend asked me this week: “Why are student loans counted as income when you’re being means tested for things, but the repayments are not taken off income later on?” I doubt that the current review will address this anomaly.

As a taxpayer who had a vastly cheaper education than today’s students, I’m prepared to put my hand in my pocket to help

Another “must try harder” is communicating more clearly to students and parents how the loans system actually works. I am not alone in arguing that the current system operates more like a graduate tax than a loan.

A better job could also be done of explaining the “parental contribution” which reduces the amount of means-tested maintenance loans. This unexpected expense has caught out many readers, and unfairly penalises families with more than one child at university.

As well as financial changes, we also need structural ones. Effort should be put into designing two-year courses, where more intensive study could reduce the burden of tuition fees and living costs.

If the government goes ahead with cutting fees and rates for future students, it should apply a discount retrospectively as well. I say this as a taxpayer who had a vastly cheaper education than today’s students — and I’m prepared to put my hand in my pocket to help.

Claer Barrett is the editor of FT Money; claer.barrett@ft.com; Twitter: @Claerb