Autumn Statement 2015: bad news for student loan borrowers
The Chancellor announced a series of changes to student loans in his Autumn Statement, including retrospective tweaks that have led to accusations of the government “mis-selling” the loans.
People with student loans borrowed on or after 1 September 2012 must currently repay 9% of everything they earn above a threshold of £21,000 after graduation.
However in the Autumn Statement documents, the government announced this repayment threshold will be frozen until April 2021, effectively increasing borrowers’ repayments in real terms.
In a series of angry Tweets, Martin Lewis of Moneysavingexpert – who chaired the Independent Taskforce on Student Finance Information – said “millions of graduates will pay more” and the change was made despite “95% of consultation responses opposed [it]”.
In a blog written earlier this year, Lewis said that if a retrospective tweak was made to the student loan system, the government will have “mis-sold university education to many students, betraying both them and me personally and I will do all I can to organise protest.”
The government said the freezing of the threshold will be offset by a change in the interest charged on the loans, which is falling to RPI plus 0.7% (RPI is currently 0.7%, so at current levels interest will be charged at 1.4%).
This replaces a more complex system, where students were charged RPI plus 3% while studying, and then anywhere between RPI and RPI plus 3% when repaying their loan, depending on their income. Essentially, existing students and high earning graduates will be charged less interest under the new system, while people earning around or below the repayment threshold will see their interest rates rise.
Other changes announced in the Autumn Statement included abolishing maintenance grants for medium and low-income students. This will be replaced by an additional maintenance (living cost) loan worth up to £8,020 for people studying away from home - although critics pointed out that this will see students saddled with yet more debt.
The student loan system will also be opened up to people studying second degrees in science, technology, maths or engineering subjects, allowing people to borrow to study from 2017.
Postgraduate students will also be able to borrow for their education under the student loan system from 2016, providing they are younger than 60.
Also, Osborne said part time students will be eligible to apply for maintenance loans for the first time.
The Spending Review also confirmed the government is looking to sell its back book of student loans issued before 2012, with the first sale expected in 2016/17.
Finally, grants for student nurses will be abolished and replaced with a loan system. Osborne claimed this will create 25% more financial support for health students.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.