The Student Loan Scam

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The Student Loan Scam

by Mark Richards

Prime Minister Theresa May has just announced a major review of higher education. She is bidding to reassure students and parents and looking to overhaul how universities are funded. But with the review set to take at least a year, will it be too little too late for a system that – increasingly – does not seem to work for either the Government or the UK’s students?

Things are bad. They’re as bad as they’ve ever been. No job, no money, the kids need school clothes, you’ve one or two habits the social workers don’t need to know about. You need money. Ask the bank? Don’t make me laugh. Short-term loan? See above. No job. So there’s only one answer…

  • How much do you need
  • Five hundred?
  • Fifty quid a week. 20 weeks. Miss a payment and all the other payments double. Miss another payment and I’ll come calling for my security
  • Security? What security?
  • Your Kneecaps. Now take your money and get out of here

But life takes a turn for the better. You find a job. You make the payments. 20 weeks, fifty pounds a week. You’re done. You never hear from the moneylender again.

If only life was so simple for the UK’s university students and – by extension – their parents.

A little bit of History

Student tuition fees were first introduced under Tony Blair’s Labour Government in 1998, with students required to pay £1,000 a year towards the cost of their education. Subsequently, the maximum fees rose to £3,000 for academic courses from 2006/7 and then – to howls of outrage from students – the cap was raised to £9,000 in 2010. It is now set at £9,250 and is accompanied by interest rates and penalties well in excess of anything you would find in the commercial world. We wrote about these rates in July last year: the link to the article is here.

Is University worth the cost of a Student Loan? | CLNews

And some theory…

Allowing universities to charge fees was supposed to promote competition between them. In practice, most universities simply charge the maximum allowable £9,250 per annum. It is not hard to imagine the university vice-chancellors getting together: Now look, lads, if we all charge the maximum then the students don’t have a choice do they? Same as it was before…

Those would be the vice-chancellors who on average earn £275,000 a year – plus index-linked pension, of course. It is difficult to escape the feeling that university has become a gravy train for administrators and lecturers – with the lecturers just about to go on strike.

Are tuition fees value for money?

Let me introduce you to my youngest son: currently in his first year at university and currently on a ‘reading week.’ And then he is on another reading week. And another… This week the University and College Union – whose members include university lecturers up and down the country – begins strike action over plans to change their pension scheme. Where does this leave, students? “We won’t be examined on what they don’t teach us,” my son said. But that is hardly the point: he has been told not to expect any more teaching for the next four weeks. Little wonder that 70,000 students throughout the UK have signed petitions demanding that fees be reimbursed for teaching hours lost. As the dispute becomes increasingly acrimonious, students are signing the petition at the rate of 10,000 a day. Clearly, once you turn students into customers their relationship with the university must change. Small wonder that they have been quick to voice their displeasure on social media…

And it is equally small wonder that more and more students – and their parents – are questioning the value of a university degree. This is especially true for vocational subjects: if, for example, you really know that you want to be an accountant at 18, why not enter the profession through an apprenticeship? Surely it is far better to earn for the next three years than to enter a graduate scheme already £50,000 in debt?

Are student loans good value for the Government?

Is University worth the cost of a Student Loan? | CLNews

Over the weekend the story broke that the Government had ‘hidden’ £7bn of student loans which it had already written-off – loans which will never be repaid. The report came from the Treasury Select Committee as it looked into how higher education in the UK is funded. £7bn is a lot of money: it is equivalent to the entire NHS capital budget.

At the moment student loans are written off if they have not been repaid after 30 years. You have to suspect that the eventual figure for write-offs will be far higher than current estimates, with the student loans scheme turning into as bad a deal for the Government as it is for students. The Department for Education issued £13.6bn of student loans in 2016/17 and the Government expects to write off 45% of them, equivalent to just over £6bn. But the recent selling of student debt on the open market at a 51% discount (meaning that £100 of student debt can be bought for £49) suggests a much higher write-off.

The basic principle is that people who are going to be higher earners in later life should not have their post-18 education subsidised by the rest of us. So far, so sensible. But the current student loan system is massively flawed: it is unfair to the borrowers and the lender seems to have no prospect of getting his money back.

The Prime Minister to the rescue

So Theresa May is going to do something about it and do it quickly. Actually, she is not. In a speech in Derbyshire earlier in the week, the PM announced a “major review of higher education.” This review will look at different post-18 alternatives to university, ask whether higher education is good value for money (both for students and taxpayers) and look at all the ways in which it is funded.

This review will take at least a year and – inevitably – cost the country millions of pounds. Alternatively, the previous 1,000 words will do the job for you, Prime Minister. Just pop my knighthood in the post…

Back with Shylock

Let me finish by going back to the introduction – our story of the moneylender. 20 weeks at £50 a week with your kneecaps as security might be outrageous. But it is no less outrageous that a graduate earning £30,000 a year can make the contractual repayments on his or her student loan and still see the capital debt increasing by around £2,000 a year. That cannot be morally right. It cannot be an encouragement to work and it must motivate many people to think of moving abroad and hopefully being out of reach of student loan repayments. It must inevitably lead to far more money being written off than the Government is currently forecasting.

An enquiry that takes a year to report and then (inevitably) a year to be considered by Parliament is no use to anyone. But that is what today’s students are being presented with. No wonder they have taken to Twitter…

By | 2018-05-30T10:08:54+00:00 February 21st, 2018|Economy, Politics|0 Comments

About the Author:

A previous financial services business owner, Mark is an experienced Journalist Speaker, Speechwriter and Coach. He has written for a number of websites related to the financial sector and won numerous awards. Mark has also published a number of books.

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