Jo Johnson urges end to 'terminology of debt and loans'

Finance expert Martin Lewis likens government to 'illegal loan shark' on 'disastrous' threshold freeze

October 3, 2017
Jo Johnson smiling
Source: Alamy

Jo Johnson, the universities minister, has said that “we need to…cease to use the terminology of debt and loans” in student finance, as the prospect of a major review of higher education funding continues to hang over the sector.

Mr Johnson debated with finance expert Martin Lewis – who said such a change could help “fix” the current system, but also said the Conservatives had previously “lied” to students when the government froze the repayment threshold – at a sometimes heated fringe meeting at the Conservative conference in Manchester.

Mr Johnson was also asked about the cost of the government’s move to raise the student loan repayment threshold from £21,000 to £25,000, a policy costed by the Institute for Fiscal Studies at £2.3 billion a year, equating to a 40 per cent increase in taxpayer funding for higher education.

“As the prime minister has set out, this will be paid for in measures that will be announced in the budget,” Mr Johnson said.

He was once again asked whether there would be a review of higher education funding. “We always want to ensure that balance of interests is in equilibrium [in funding],” the minister said. “That’s why we always reserve the right as a government to keep it under review and ensure it’s continuing to do the job we need it do.”

Mr Lewis, who created MoneySavingExpert, which hosted the fringe event, led an independent task force on student finance set up by the government in 2011 to ensure students understood the £9,000 fee regime.

He said the “language of debt” was “psychologically damaging” as well as “misleading”, when the student funding was actually a “contribution system in proportion to your success after university”.

Mr Lewis continued: “If you want to fix this, if you’re going to stick with this system, get rid of the name of ‘debt’; get rid of the word ‘interest’, call it an ‘uprating’. This, in every other country, is called a ‘graduate contribution system’…Right now, the system’s broken because it ain’t a loan and we call it one.”

Mr Johnson replied: “We are in agreement – this should be seen as a graduate contribution.”

He continued: “I think we do need to work on the language and cease to use the terminology of debt and loans. It has to be understood as a time-limited, income-linked, graduate contribution.”

Mr Johnson said later in the meeting that the concept of repayments being a function of earnings rather than loan balance is “a difficult financial concept for many people to get first time”.

The minister continued: “I think that maybe students looking at the system don’t understand that: they see the headline figures that are reported in the media about £50,000 of debt and that might be off-putting.” He added, however, that proportions of disadvantaged young people in higher education were at record levels.

When asked whether there would be any change in government policy, Mr Johnson would only say: “I’m committed to calling it a graduate contribution that’s time limited and income-linked.”

Although the government has now said it will raise the loan repayment threshold, Mr Lewis (who welcomed that change) highlighted the government’s decision in 2015 to break its pledge to uprate the threshold in line with earnings and implement a retrospective freeze affecting existing borrowers. “It was disastrous,” he said. “The fact there’s been a U-turn hasn’t stopped the disaster.”

That was “a breach of a very loud promise made by [former universities minister] David Willetts”, he said. That “breach” had “knocked the faith of students in the student loans system we have”, Mr Lewis added. “How can you trust it?”

The change “knocked the faith of students in the entire political system: because the political classes – and let’s be straight…the Conservative political classes primarily, lied to them and misled them.”

Mr Lewis said it should either be “locked into statute” that terms and conditions cannot be changed retrospectively, or if there are variable rates and conditions, “that needs to be declared and transparent”.

Mr Johnson countered: “It makes clear in the loans that students agree to take on that it is within the government’s power to make changes.” The freeze was a “legitimate policy choice at the time” as lower-than-expected earnings growth raised the government’s costs in loans and, without the freeze, it would have been “under greater pressure to reimpose student number controls”.

Mr Lewis replied: “To say it was in the terms and conditions is what payday loans companies do, Jo. It’s not what the government [should] do.” He added: “Don’t hide behind the terms and conditions; that’s what the dodgy loan sharks do, the illegal loan sharks.”

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