Wrong to compare student loans to PPI scandal, says Jacqui Smith

Government policymakers have stopped short of promising to adjust the terms of existing student loans despite public pressure to do so, saying they need to consider “fairness to taxpayers as a whole”.

Appearing in front of the the House of Commons Treasury Select Committee, Treasury chief secretary Lucy Rigby said there were “a number of things” she would like to change about the student loan system in a “perfect world”. 

However, despite prime minister Keir Starmer’s promise to look at making student loans fairer, Rigby said the government had to bear in mind the “overall fiscal position” when considering changes.

“I think the right way to look at it is about fairness to taxpayers as a whole,” she said. She went on to point out that the majority of young people don’t go to university and that other decisions had been taken by the government that would benefit graduates, such as reforms to renter’s rights.  

Skills minister Jacqui Smith said a “significant government subsidy” already goes into the student finance system, with 30 per cent of the money loaned to students never repaid, on average.

She said the decisions made by government about where to focus resource have a very “big impact on the public finances”. 

“If, for example, we reduce interest rates in the way in which some people have suggested that we should do for Plan 2 loans, that would cost a considerable amount of money,” she said. 

Much of the outrage about the student loan system has been centred on the ability of the government to retrospectively change the repayment terms. In the last budget, the government announced that the repayment threshold for Plan 2 loan holders would be frozen for three years from April 2027. 

But Rigby defended the right of the government to make changes. She said student loans are “very different” to commercial loans, in part because they are income-dependent and written off after a certain time period. 

“Because they are so heavily subsidised by the government, the government has the right, as indeed previous governments have done, to change some of those terms of the loan.”

Smith later said former banker Philip Augar, who appeared in front of the committee earlier in June, was “wrong” to compare the student loan system to the Payment Protection Insurance mis-selling scandal because it was clear in the conditions of the loans students took out that the terms could change. 

Smith was also asked about the balance of government and individual contributions to higher education funding, following comments from Universities UK chief executive Vivienne Stern at the committee’s last session about the decline in government investment. 

The minister said the government’s overall contribution was in the region of 35 to 40 per cent, including student loan subsidies. 

“I have sympathy for the idea that the government might fund higher education more,” she said, but added that more public investment in universities “needs to be weighed up against the other priorities that not just the Treasury but even we in the Department for Education have”. 

The government is expected to slash direct funding for university teaching for the second year in a row. 

Smith added: “We have made decisions about where we invest money and it has been in early years, it's been in special educational needs, it's been in 16 to 18 education. Those are the choices that we are employed to make in government.”

helen.packer@timeshighereducation.com