Martin Lewis is angry. “I feel like I’ve been lied to,” he says. It’s 9 in the morning and he’s called me to complain about the government.
Lewis, the dynamic founder of ‘Money Saving Expert,’ has dedicated his career to dealing with consumer rights. The website’s ‘Student Loans Mythbusting’ guide has been viewed over a million times and has been a hub of advice for prospective students since it was published in 2011.
“I told people that in 2017 the £21,000 repayment threshold was due to rise,” Lewis said. This is what the government promised in 2010; but in September they announced a change of plans. The threshold will now be frozen until 2021.
“I feel duped. I refuse to be a mule for missold loans to students”.
Yet Lewis himself left university over ten years ago. What makes him care so much, and what is he going to do? He tells me tht he believes there may be a legal case for judicial review, in which a court can review the lawfulness of a legislative act. He has personally engaged lawyers from Bindmans LLP to investigate the options to see if the proposals could be legally challenged.
“Student finance has always been a passion of mine”, Lewis admits. He was a student journalist at his own university and became the General Union Secretary after graduating from LSE. More recently, he headed the Independent Taskforce on Student Finance alongside the NUS.
Lewis believes that the government shouldn’t be able to make retrospective changes to student loans: “It’s bad governing and bad financial conduct. A private company would never get away with it.
“Governments are allowed to change policy, that’s their job, but with this proposal they’re changing a contract and that’s why we’re looking to take it to court”.
“Someone who graduated last year, even before these changes were put in place could still be affected by them”.
Under the Conservative government, graduates who started university from 2012 and beyond repay student loans at a rate of 9% of everything they earn over the threshold of £21,000. This begins the April after students leave university.
Previously, the threshold has been reviewed every five years. However, in 2010, the government promised that- as of April 2017- the threshold would rise annually to reflect general earnings.
On December 8, 2010, Vince Cable addressed parliament on this model. He argued: “our modelling to date has assumed that that threshold should be uprated every five years in line with earnings. In order to give better protection for those on lower incomes, we now propose that the uprating should instead be made every year. Around a quarter of graduates will be better off in this new, more progressive regime than under the current regime”
Five years later, secure in a Conservative majority, the government now states: “the proportion of borrowers liable to repay when the £21,000 threshold takes effect in April 2016 is lower than was expected when the decision to raise the threshold was made”
“the threshold is therefore higher in real terms than was originally intended”.
Instead of rising annually alongside general earnings, the repayment threshold will stay frozen at £21,000 until 2021 regardless of how much the average student is making. If approved, these changes are due to go ahead in 2016. The government claims that this u-turn would make an “important contribution to the Government’s debt reduction plan”.
In their proposal, the government puts forward three options. The first is that these changes apply to all graduates who started university from 2012 onwards. The second is that the changes apply only to new students and the last option was to make no changes at all. The government argues for the first option as their preferred choice.
In their assessment of the policy’s impact the government also claims that repayments will be increased by £3.2 billion over the lifetime of the loans for existing borrowers and approximately £1 billion per £15 million for new borrowers. They are expecting an extra £680 million of repayments in the next five years alone.
This, it predicts, will affect roughly 2.1 million existing borrowers.
In a blogpost explaining his opposition to the policy, which he calls a “disgrace”, Lewis explains that this doesn’t mean the majority of students will end up paying their debt off in full before it is wiped off after 30 years, but that “you’ll end up paying £1000s more before that 30 year mark”.
In their response to the consultation, Money Saving Expert explains: “The example graduate in the consultation paper who starts earning £21,000 would make £6,100 more re-payments than under the current policy. At the other end of the scale, the example graduate whose earnings start at £50,000 will pay back £200 less than under the current policy”.
On average, students will end up paying roughly an extra £6 a week, or, £306 a year by 2020. The Sutton Trust found that this would equate to an average of £2,800 extra per student.
The government, however, predicts that this figure would jump to £4000 for those earning £20,000-£35,000.
At face value, he continues, it would seem that higher earners have the most to lose. However, whilst this may be true in the short term, those earning enough to clear the debt off within 30 years will pay it off quicker and therefore pay less interest and less in total. He explains that this policy “benefits high-earning graduates at the expense of lower or mid-earning ones.”
The disparity between high and lower earning graduates is not the only problem with fair practice that this policy proposal has.
Although the proposal claims that these changes will “make the system more affordable to the government and the taxpayer”, women, ethnic minorities and disabled students are on average likely to be most negatively affected by them. The government predicts that male graduates are 24% more likely than women to fully repay their loans. Meanwhile, the Sutton Trust investigation into the proposal found that women will pay roughly £1000 more over the lifetime of their loans than men are expected to.
The government states that “women, ethnic minorities, people with disabilities and mature students are more likely to fall into the range of income that is most affected. If the repayment threshold were to be uprated by earnings, around 50% of existing male borrowers will fully repay, compared with 26% of existing women borrowers.”
However the same document goes on to say: “It is not possible to estimate the lifetime repayments for ethnic minorities and those with disabilities using the BIS repayment model. Analysis of the Labour Force Survey indicates that both of these groups of students earn less over their lifetimes than their white and non-disabled peers, so they are increasingly likely to be represented in the group of ‘middle-earners’ with higher average repayments.”
Furthermore, Sir Peter Lampi expressed his concern about the effect the proposed measures will have on part-time and mature students, saying: “Participation rates for these groups have declined substantially since the increase in tuition fees.”
The government did hold a consultation on the proposal, which ran from the 22cnd of July to the 14 of October. There were 489 responses ranging from individuals, student unions, universities and business organisations.
Of those surveyed, 84% were against the proposed changes, and only 5% were in favour. Despite this, the government claims that the 410 responses that were against it had “very little evidence to back up their claims”, and that many responded with a template provided by Money Saving Expert.
The main points of concern from those against the motion were that it represented a retrospective change that would not be acceptable for private businesses to execute, and which may have influenced the decisions of those who took out loans before this information was available. A loss of trust in government and concern for the legality of the changes were also cited as reasons for opposition.
Those in favour of the measures, the paper notes, tended to be private and business organisations who were concerned about the complexity of a system under which the threshold would change every year.
Although the Sutton Trust explains that, in the terms and conditions when a student applies for a loan, there is a clause that allows for retrospective changes, Lewis argues that it is a “breach of trust” and that “if retrospective changes are introduced…we would not be able to rely on Government messages, and could not expect students to do so”
As our phone call comes to an end, Lewis makes a strong statement about what students can do. The judicial process doesn’t leave much time to take action, he notes, and they may need student volunteers to come forward and make cases.
However, perhaps inspired by the prospect of action, Lewis suddenly exudes passion. “The government”, he says, “is used to student protests. Student protests are going to make very little difference, so write to your MP, go to a protest, but if you really want to put the fear of God into the government, get your parents, your grandparents to write in. Nothing speaks to the government more than middle England complaining”.