Buy now, pay later as student grants become loans

Policies announced in the Budget mean more cash today for the poorest students, but what about tomorrow’s debts? asks Wes Streeting

July 16, 2015
Person swiping credit card instore

By plunging the poorest students into record levels of debt and tinkering with the student loan repayment system, George Osborne is taking a huge gamble – with fair access to higher education and also with the ticking debt time bomb that sits beneath our student finance system.

We do not yet know what impact replacing grants with loans – the policy announced in last week’s Budget – will have on applications from students from disadvantaged backgrounds. My own experience of campaigning on changes to student finance over the years has taught me to exercise caution before prophesying doom, but we know that the picture is complicated.

Research published in 2014 by Lorraine Dearden et al. found that a £1,000 rise in maintenance grants increases participation in higher education by just under four percentage points. We need only look at the fall in applications from part-time and mature students after the introduction of £9,000 tuition fees to know that changes to student finance can have detrimental and unforeseen consequences.

Then there is the issue of fairness. As with so many of Osborne’s Budget measures, the poorest will be hit hardest. The introduction of a non-repayable grant for students from the poorest backgrounds was a progressive step. Replacing grants with loans will mean that the poorest students graduate with the most debt. This is hardly fair.

In his Budget speech, Osborne also announced that “to ensure our university system is sustainable, we’ll consult on freezing the loan repayment threshold for five years”. If repayment terms and conditions change as the chancellor has indicated, the lowest-paid graduates will also be at a disadvantage. Freezing the repayment threshold on student loans at £21,000 will not affect the highest earners, but will impact detrimentally on graduates entering lower paid jobs. A more progressive approach would be to look at the taper on the interest rate applied to student loans – although the announced consultation on student finance suggests that the government may be considering both measures as a means of achieving savings.

The new higher education minister, Jo Johnson, was evasive in the House of Commons when I asked him to rule out any retrospective changes to student finance terms and conditions for existing students and graduates. But failing to do so would be a terrible mistake, and ministers should resist the temptation to seek quick savings. When the last government trebled tuition fees, I worked with Martin Lewis, the creator of, as part of the Independent Taskforce on Student Finance Information to communicate the facts around the new system in an easy-to-understand and impartial way. If potential students, or their parents, suspect that a future government might change the terms and conditions on their student finance package, this could well deter applications. It would certainly undermine trust and, in any event, would be a deeply unfair thing to do. People need to know what they are buying into up front.

The 2012 reforms were designed to shift the cost of higher education on to graduates, but recent estimates suggest that the Exchequer is losing 45p in every £1 lent to students. Larger student debts are likely to incur high levels of debt write-off. The idea that we can go on like this without consequences further down the line seems too good to be true, and the differing analyses of how debt write-off should be treated through the resource accounting and budgeting charge provide little reassurance.

There is always a risk that special pleading on behalf of students gains little sympathy, particularly when the amount of cash available to the poorest students will be higher after these changes. But there are serious questions to be answered about the sustainability of the higher education funding system, and there can be no doubt that the changes to student finance announced in the Budget are regressive. We risk damaging the sluggish progress being made to widen access to higher education when we should be moving faster to ensure that all our universities are genuinely accessible to talent.

Wes Streeting is Labour MP for Ilford North and a member of the Treasury Committee. He was president of the National Union of Students from 2008-10.


Print headline: Buy now, pay later

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