Penalty for early repayment of fee loans is wrong, says Which?

Consumer rights champion Which? has urged the government to scrap plans to penalise students who repay their tuition fee loans early.

September 29, 2011

Peter Vicary-Smith, the group's chief executive, has written to David Willetts, the universities and science minister, advising him to withdraw proposals for an early repayment penalty fee similar to those used by the mortgage industry.

The proposal has been advocated by the Liberal Democrats, who were concerned that richer graduates could pay less overall by wiping out their loan arrears quickly, thereby avoiding mounting interest charges.

But Mr Vicary-Smith claims that the progressive nature of the proposals is "overstated" and "rests on a misunderstanding" of why people pay back debt early. "Future graduates should continue to be able to repay the full amount of their debt upfront or make larger monthly repayments without incurring a penalty," he says.

Mr Vicary-Smith adds that early repayment penalties run contrary to current advice to borrowers, which encourages them to pay off loans as quickly as possible.

"We think the same should apply to student loans," he says. "It is wrong to keep graduates artificially indebted if they are willing and able to be debt-free sooner."

His letter follows remarks last week by Simon Hughes, the Liberal Democrat Party's deputy leader and its access champion, who said he had been "intellectually persuaded" that the plans to impose a penalty were based on the wrong "logic".

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