‘Duty of care’ needed for student loans, inquiry hears

A duty of customer care should apply to student loans in the same way it does to other financial products, MPs have been told. 

The House of Commons Treasury Select Committee heard from experts on 2 June as part of its inquiry into student loans, including former banker Philip Augar, who said he felt “outrage” at the way the terms of student loans have been changed retrospectively.

Augar, who chaired a 2019 review of UK higher education, said Plan 2 student loans should be treated more like a conventional financial services product.

“A financial services organisation has a duty of customer care and that really ought to apply to government in the context of loans sold effectively to young people making the first important financial decision of their life,” he said. 

“There’s a moral issue here. You shouldn’t be retrospectively changing the terms in quite a complicated, almost sneaky way, bit by bit.”

A survey conducted by the committee, which received 52,000 responses, found that more than half of student loan holders would not borrow money for higher education again “knowing what they do now”. 

When later asked if he would expect the Financial Conduct Authority to intervene if a bank sold a financial product in the way student loans had been, Augar compared the situation to the payment protection insurance mis-selling scandal, which saw billions of pounds paid out in compensation to affected customers. 

“If there isn’t a legal responsibility, there’s a moral responsibility not to alter the terms and conditions as we go along,” he said.

Vivienne Stern, chief executive of Universities UK, said she agreed that “transparency and scrutiny” is needed around student loans, but she wasn’t “persuaded that the Financial Conduct Authority is the right body to provide that scrutiny because it isn’t a commercial loan”. 

She added that the balance between how much the state subsidises higher education students is unclear as the Treasury doesn’t publish the data. 

“I think there should be some sort of annual scrutiny of the balance in contributions between the individual and the state so that it doesn’t happen in the dark,” she said.

“The reason we should be concerned is that the history of this has been that people have been worried that the loan and finance system will put people off going to university,” Stern continued. 

“If we get to a tipping point and it starts to look like a bad deal, that’s a problem for the whole of society, not just for the individuals who might lose out.” 

Stern also noted that the Treasury sometimes takes money from the student loan scheme to use in other areas of government and “nobody notices”.

Augar said that the current balance between state and individual contributions – which some estimate to be as high as 97 per cent from the latter for the 2022 cohort of undergraduates – effectively represents “the privatisation of higher education”. 

He added that while there should be more transparency from the government, he also believed universities should be more transparent about graduate outcomes so that “young people considering going to university are able to judge correctly what the earnings outcome has been for past cohorts and to compare between similar universities offering similar degrees”.

Asked whether there needed to be a conversation about the types of courses funded by student loans, given some are more likely to lead to higher-paying jobs, Stern said that it is right to have a system driven by student demand. 

“In short, because we’re terribly bad at predicting what jobs will exist in the future,” she said, noting that video game design used to be viewed as a “nonsense subject”, whereas the UK now has a “massive games industry”. 

helen.packer@timeshighereducation.com