My word is my bond? Freezing the student loan repayment threshold

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Just over a year ago the government proposed a retrospective change to the terms of student loans. Rather than annually uprating the repayment thresholds in line with average earnings, thresholds are to be frozen for five years for existing as well as new borrowers. This measure was justified as being the only way to contribute to government’s objective to bring down debt by 2020, in this Parliament.

At first many saw this change as an obscure, technical issue, less important, say, than the abolition of maintenance grants or increasing fee levels. More recently, an appreciation of what is at stake has emerged. 84% of the respondents to the government’s consultation rejected the proposal. Then a student, Alex True, started a petition to “stop retrospective changes to student loan agreements”. It soon reached the required 100,000 signatures for a debate in Parliament, which took place on 18th July.

Even for those with low expectations, the response in the Parliamentary petition debate from the Minister, Jo Johnson, was disappointing. He wandered off the petition issue, repeated already discredited arguments and even said that there had not been a change in the terms and conditions. Just what did he mean?

A response to HEPI

In a recent blog Nick Hillman, Director of HEPI, and former Special Adviser to David Willetts, though not comfortable with retrospective changes, was prepared to defend them. He focussed his argument on the position taken by Martin Lewis of MoneySavingExpert.com. Here I respond and suggest how Hillman’s views may underpin the government’s self-justification of their student loan policy.

 “we are told the ‘Retrospective changes haven’t happened before’. This is not true” –  Hillman

However, it is true that retrospective changes in loan terms, unfavourable to the borrowers, have not previously been made to the specific borrowers in question: English and EU domiciled students at UK HE providers.

Hillman refers to the increase in the repayment threshold from £10,000 to £15,000 as an example of a retrospective change. With this change, borrowers could decrease their repayment rate at the risk of repaying more in total. Crucially, they were not required to reduce their repayment rate; the SLC would accept higher payments and they could continue to repay on the old terms. The change gave borrowers more repayment options, and was not unfavourable to them.

He also cites unfavourable retrospective changes to student loans in New Zealand. Hillman does not recommend that the UK follows New Zealand, but he fails to acknowledge that once retrospective changes are introduced, governments might get hooked on them. This will undermine trust and weaken the impact of future policy initiatives.

“Martin Lewis has been saying for years that ‘a student loan isn’t really a debt like any other, in fact it acts far more like a tax than a loan.’ Quite right. But taxes change each year . . .” – Hillman

Student loans, with the conditions as originally set out for the 2012 scheme, do have a tax-like feature: the rate of repayments depends on the individuals’ earnings and not on the size of their loans. The loans are still tax-like, but now that retrospective changes have been established there can be no certainty that they will remain that way in future.

Hillman goes on to say that “if a student loan is a capped graduate tax, as many people claim, then it is unwise to assume that all its features will be fixed for evermore”. ‘Graduate tax’ has always been more of a slogan than a policy, but let us suppose it meant that if you are a graduate you have to pay income tax at two pence in the pound more than an otherwise identical non-graduate. Graduates would expect their tax rate to go up and down, but if the government had promised that the graduate tax would be an extra two pence in the pound, then the students would have a reasonable expectation that two pence it would continue to be.

 “Hitting future students even harder than past and present ones could be more likely to affect future demand than sharing the pain.” – Hillman

Suppose this was correct. Would it justify making retrospective changes? It certainly ignores the costs of the loss of trust. Nonetheless it is more likely that retrospective changes will indeed impact demand, and, just as importantly, impact students’ higher education experience. Secure knowledge about how much one will have to actually pay towards going to university, given future earnings, is arguably at least as important as the nominal total debt for maintenance and fees.

Again and again students have been reassured that they won’t have to pay if they are on a low income. Imposing a retrospective change on past and current students leaves future students with no idea as to what the cost of higher education may be for any given future earnings. I suspect that most potential future students have yet to grasp this point, given the misinformation that passes for advice in the media. In particular, Lord Willetts continues to go on the airwaves to reassure potential borrowers that they would only pay if they have a well paid job and only then at a marginal rate of 9% of their income, without any warning that this could now easily change once the loans have been taken out.

Sooner or later the penny will drop, and students could become much more reluctant to take on debt. In the petition debate, Jo Johnson repeated the mantra that increased fees had not deterred students from applying to university. This is correct, at least for young full-time applicants, but it fails to appreciate why they were not deterred: because of reassurances that retrospective changes will undermine.

My Sutton Trust report, ‘Unfair Deal’, has explored how increased concerns about debt have impacted students’ higher education experiences and achievements. Whilst headline participation rates may hold up as long as there is no alternative to higher education for those aiming for many careers, there is a risk that the quality of students’ HE experience will be adversely affected.

“the annual increases to the repayment threshold that were promised were the hobbyhorse of the minor party in the Coalition Government” – Hillman

Increases in the repayment threshold were not the invention of the Liberal Democrats. The Browne Review recommended that the threshold be “reviewed regularly to bring it into line with growth in earnings”. Given that many borrowers would be repaying over thirty years, this was essential if they were not to be obliged to repay loans while on low incomes. Conservatives, as well as Liberal Democrats, reassured students that they would only have to repay if they could afford it.

No recommendations were made about the frequency of reviews, though Vince Cable referred to an “original” proposal for uprates “every five years”.  It may be that annual versus quinquennial updates were debated within the Coalition along party lines, but unless average earnings rose very rapidly, there would not be a huge difference between these options.

The current policy is not a reversal to “uprating in line with average earnings every five years”. Although there is now a review promised for 2021, it involves no commitment to bring the threshold into line with the £21,000 threshold at 2016 earning levels. The projected savings in the threshold freezing consultation imply that such an uprating is not planned.

This change in policy with a change in government is not in itself remarkable; the issue is that it is being applied to existing borrowers. But it seems that the promise of annual uprates, as a Liberal Democrat “hobby horse”, was a promise subsequent governments have no obligation to keep, even to the students who were taking out loans shortly after the promise was first made. There is just one further step to say there was no agreement for uprating repayment thresholds, and therefore no retrospective changes.

“the increases to the threshold were never more than a verbal commitment” – Hillman

It is untrue to say that the promise to increase the threshold was only a verbal commitment. A ministerial statement was published, as was a ‘student finance myth buster’, directed to potential students and their advisers. Both stated that the repayment threshold would increase annually in line with average earnings. Such official publications led to the policy being disseminated more widely, by universities, school teachers . . . and by Martin Lewis.

In 2012 I asked BIS whether any significance should be attached to the lack of legislative action on the threshold uprating, and why it had not been included in the then current SLC literature. BIS replied:-

“we intend to uprate the £21,000 threshold annually in line with earnings from 2017.  No decision has been taken to depart from our stated policy . . . the first threshold uprating would be due in 5 years time – April 2017; so it has not been necessary to legislate for the threshold increase this year.”

Since then there has been no official announcement of a change in the “stated policy” until the launch of the consultation on July 22nd last year. Indeed just three months earlier on April 23rd, in the run up to the general election, the previous minister, Greg Clark, confirmed that no change in terms was required.

Student loan doublethink

In the petition debate Jo Johnson effectively denied there was ever an uprating policy:

“the threshold freeze did not actually change the terms and conditions; it merely left them unchanged”

If threshold uprating was not part of the package of loan terms, why was there a consultation to freeze it? What might be brought to defend the idea that there never was a commitment to uprate the repayment threshold? That it was only a Liberal Democrat policy; that it was only a verbal commitment; that it was not incorporated into the SLC documentation. None of these arguments stand up to examination.

12 thoughts on “My word is my bond? Freezing the student loan repayment threshold”

  1. Nick Hillman says:

    John is mildly obsessed with my opinion on this issue and we have been corresponding on it in private for at least a year. But I am keen to ensure people do not get the wrong impression from this article.

    As I wrote in an email to John on 25 August 2016: “my goal has never been to ‘defend’ the change. It has been to contribute to the public debate, which has been overly one-sided, by spreading an understanding of why freezing the threshold doesn’t seem such an unreasonable thing to do to those sitting in Whitehall and Westminster. That strikes me as the right sort of role for the head of a think tank who previously worked in Government – and it explains why I think you have my motivations wrong: my goal is to explain rather than to defend.”

    In case anyone is left with the impression that I support the change to the threshold, I also sent John an email a day earlier that said: ‘I am not sure how I can be clearer on this than I have been but, for the avoidance of doubt, I do not like it and I would prefer it was not happening – so we are nothing like as far apart as you pretend.’

    Last autumn, I even made it clear to John that I agreed tough loan terms might not be sustainable in the long term: ‘my view is the repayment terms are more likely to become a political issue in a couple of decades’ time rather than now, when they come to feel like a heavy burden on graduates in middle age with other financial responsibilities’.

    Do take a look at my HEPI blog John is responding to (at http://www.hepi.ac.uk/2016/07/28/why-the-moneysavingexpert-is-wrong/) but if you want to read the case for the freeze in the threshold you would be better off reading material from Univeristies UK, David Willetts or the Government itself.

  2. Brian says:

    As I have posted in the comments in response to Nick’s piece (http://www.hepi.ac.uk/2016/07/28/why-the-moneysavingexpert-is-wrong) he is correct in that retrospective changes have happened far more than is commonly believed. You are wrong in saying “however, it is true that retrospective changes in loan terms, unfavourable to the borrowers, have not previously been made to the specific borrowers in question: English and EU domiciled students at UK HE providers.”
    As a borrower who started a first degree in 2008 and then took a further one year (PGCE) course in 2012, I have student loans under both pre-2012 and post-2012 schemes, and I believe it or not, I have had 4 retrospective changes to my loan terms since 2008, 3 of which have been unfavourable to me. As I explain in my comment on Nick’s piece, the first is the promise that I would be able to take up to 5 years ‘holiday’ from repayments, which was announced by the Secretary of State for DIUS (the department then responsible for higher education) in 2007 and this was detailed in the SLC guide to terms and conditions for both 2008/09 and 2009/10 which I was told to read when agreeing to the loans. By 2010/11 this ‘repayment holiday’ term had completely vanished, and not just for new students, but for me – it was therefore a retrospective change. It was never implemented into the repayment regulations and therefore never legislated for (and was therefore a verbal announcement – a potential term – rather than a concrete term) and lasted about as long as DIUS before it became BIS.
    Another term that was changed retrospectively was the intention to uprate my £15,000 threshold by inflation from 2010. This ended up not being implemented until 2012, and this had followed retrospective changes to how the threshold would be increased before 2008 too – the threshold started off at £10,000 and Government had originally planned to uprate it with earnings, but changed this to an inflation-linked increases and an increase to £15,000.
    The third example I am giving is less clear-cut in that it relates to the interest rate I had applied to my loan in 2009/10. Whilst the Government set the interest rate afresh in the student support regulations each year until 2008, they had always said (and reiterated the year before when inflation spiked to 4.8%) that they had no intentions to stop the practice of setting the interest rate in line with the March RPI of that year. Come March 2009, inflation as measured by RPI, was -0.4% – which explains why the Government decided not to change the threshold as intended in 2010, as it would have gone down – but this decision was not only retrospective but also unfavourable, in that they also decided to wriggle out of setting an interest rate in that year, making the rate an above-inflation 0%. They did this in a rather underhand way by revoking and then re-enacting the repayment regulations to include a new provision allowing the Government not to set an interest rate which was passed in March 2009 (previously the interest rate had been set in the student support regulations each year to correspond with the March RPI rate of that year). This decision to freeze everything rather than use the negative RPI rate not only led to the threshold being frozen in April 2010, but eventually led to the threshold remaining at £15,000 for a further two years than originally promised; until 2012, and not having an inflation increase in 2011 by the high March 2010 RPI rate of 4.4%, again unfavourable and not what was promised – a retrospective change.
    The final retrospective change that I’ve had applied to my loan terms since 2008 is the freeze to the £21,000 threshold. And believe it or not, due to the way my pre-2012 loan inter-relates with my post-2012 loan, this change is the one that is NOT unfavourable to me; in fact quite the opposite. As I explain in response to Nick’s piece, although it means I see higher interest (due to the interest thresholds being frozen at the same time as the repayment threshold), the freeze on the £21,000 threshold is favourable to me, as I have loan deductions taken above a lower threshold due to the pre-2012 loans remaining with a lower threshold since 2012, rather than being brought up to £21,000. Yet only repayments taken from above £21,000 income goes to repay my post-2012 loan, which has higher interest applied and a longer write-off date (and due to the first post-2012 loans only entering repayment from 2016, it has a longer write-off date still as the 30 year clock did not start ticking from the April in 2014 after I finished the post-2012 course, only from April 2016 – due to an administrative delay (kink) at the start of the new scheme) so it’s in my interest (no pun intended) to repay the post-2012 balance first, which the threshold freeze helps with.
    Retrospective changes in income-contingent student loan terms are not new. However once a term has been legislated for, it is less likely to be changed retrospectively. All of these unfavourable retrospective changes so far have been to intended terms than have been verbally announced (or in the case of the repayment holidays policy, put into the SLC guide) but never made it into the regulations. Terms that were never legislated for can not really be said to have ever been terms at all.

  3. John Thompson says:

    In the HEPI blog it was noted that the increase in the repayment threshold from £10,000 to £15,000 for income contingent loans in 2005/06 was a retrospective change. I pointed out that, though this was the case, it did not disadvantage borrowers. I then concluded that retrospective changes in loan terms, unfavourable to the borrowers, had not been made before the threshold freeze proposed in 2015. This was incorrect; I had overlooked changes that Brian has set out in the comment above.

    His two most straightforward examples concern the 2008-09 and 2009-10 Guides to Terms and Conditions. These state that students, like Brian, starting in 2008, ‘may have the option of taking a Repayment Holiday’. It seems that this option was not honoured. I am seeking confirmation from the SLC that this is the case, but given it has been dropped from 2010/11 and later Guides, it is almost certain that such ‘Holidays’ are no longer available, if they ever were, for 2008-09 starters as promised. The 2008-09 and 2009-10 Guides also explain that, ‘borrowers pay back the same amount that they borrowed’; they will be charged a zero real rate of interest. In 2009/10 the RPI was -0.4%, and borrowers were charged a nominal 0%, or a real rate of +0.4%. Only those on income contingent loans were charged this rate, those on mortgage loans had a real rate of 0%, as promised. I’m looking into why the borrowers on the two schemes were treated differently.

    The increased costs for most borrowers that these retrospective changes generate will be much smaller than the impact of the threshold freeze announced in 2015, if only because on average debts are much higher for post-2012 students. This is not to argue the pre-2012 changes are justifiable. Indeed, their long term damage may well be in creating a precedent. Though, as far as I am aware, the Conservative Government did not publicly use Labour’s changes to justify the threshold freeze, the fact that these earlier changes had been introduced, with little or no opposition, may well have encouraged them to go ahead. This does not bode well for the future, with the possibility that future governments, further emboldened, will impose even more drastic retrospective changes to loan terms.

    Brian has concluded that ‘terms that were never legislated for cannot really be said to have ever been terms at all’. I cannot agree. We should not let those responsible off the hook, if only because few advisors, let alone prospective students, will know the exact legal status of the terms set out in official SLC and government publications. But I do think he is right to expect that, once terms are legislated for, retrospective changes to those terms will be less likely. This is worth bearing in mind as we approach the Review of terms for 2021. Once terms are decided, they should be passed into law without delay. That said, if the notorious ‘get out’ clause stays, borrowers will continue to take out loans with no certainty as to how much they will have to repay, even if what comes out of the Review is legislated for.

  4. Brian says:

    “…as far as I am aware, the Conservative Government did not publicly use Labour’s changes to justify the threshold freeze…”. Indeed – and in not doing so in my opinion missed an opportunity to immediately weaken or kill off any argument from Labour and fallacies from the likes of Martin Lewis that the freeze would set a precedent. It’s a purely factual point that retrospective changes have been made before, both to terms already implemented (though not yet unfavourable) and terms not yet implemented (which are much more common) where ‘implemented’ means ‘legislated for’ (i.e. put into the repayment regulations which until 2009 were the Education (Student Loans) (Repayment) Regulations 2000 (http://www.legislation.gov.uk/uksi/2000/944/contents/made) and all subsequent amendments (2001-2008) and from 2009 are the Education (Student Loans) (Repayment) Regulations 2009 (http://www.legislation.gov.uk/uksi/2009/470/contents/made) and all subsequent amendments (2010-2014).

    “In 2009/10 the RPI was -0.4%, and borrowers were charged a nominal 0%, or a real rate of +0.4%. Only those on income contingent loans were charged this rate, those on mortgage loans had a real rate of 0%, as promised. I’m looking into why the borrowers on the two schemes were treated differently.” The reason for the difference in treatment of pre-1998 and post-1998 loans in relation to the interest rate applied in 2009/10 stems from the legislation which the loans are made under.

    Pre-1998 mortgage-style loans were made under the Education (Student Loans) Act 1990 (http://www.legislation.gov.uk/ukpga/1990/6/contents) and the terms set out in regulations made under that Act. These loans were regulated loans falling under the protections of the Consumer Credit Act 1974, so once a set of terms had been issued, they could not be retrospectively changed to the detriment of borrowers.

    The credit agreement for loans made up to 1998 under the Education (Student Loans) Act 1990 is here: http://www.slc.co.uk/media/5209/post_98_ms_credit_agreement.pdf and the credit agreement for mortgage-style loans made from 1998 is here: http://www.slc.co.uk/media/5209/post_98_ms_credit_agreement.pdf.

    Paragraph 3 of the credit agreement for loans made up to 1998 sets out that “the Loan will bear interest at such rates as from time to time may be prescribed in applicable regulations being such rates as appear to the Secretary of State (and, in Northern Ireland, the Department for Education and Employment) to be requisite for maintaining the value of that amount in real terms. The current rate of interest so prescribed is set out overleaf and may be varied from time to time as mentioned overleaf…”

    For example, for loans taken out in academic year 1990/91, the interest rate was set in accordance with regulation 6 of the Education (Student Loans) Regulations 1991 (http://www.legislation.gov.uk/uksi/1990/1401/regulation/6/made) to be the RPI rate for June 1990: “that percentage is the percentage increase between the retail prices index published by the Central Statistical Office of the Chancellor of the Exchequer for June 1989 and the retail prices index so published for June 1990.”

    For example, for loans taken out in academic year 1991/92, the interest rate was set in accordance with regulation 7 of the Education (Student Loans) Regulations 1991 (http://www.legislation.gov.uk/uksi/1991/1299/regulation/7/made) to be the RPI rate for June 1991: “that percentage is the percentage increase between the retail prices index published by the Central Statistical Office of the Chancellor of the Exchequer for June 1990 and the retail prices index so published for June 1991.”

    (Historic RPI rates can be found here: http://swanlowpark.co.uk/cpirpimonthly.jsp and historic rates applied to student loans can be found in the table here: https://en.wikipedia.org/wiki/Student_loans_in_the_United_Kingdom#Repayment_and_interest.)

    Paragraph 3 of the credit agreement for loans made after 1998 sets out that “the interest rate for the period between 1 September and the following 31 August will be the daily rate which would result in an APR for a loan on the terms of this loan equal to the RPI rate. We will tell you the new interest rate in September each year.”

    This is legislated for by paragraph 3 of Schedule 2 to the Education (Student Loans) Regulations 1998 (http://www.legislation.gov.uk/uksi/1998/211/schedule/2/made) as amended by regulation 4(b) of the Education (Student Loans) (Amendment) Regulations 1999 (http://www.legislation.gov.uk/uksi/1999/1784/regulation/4/made) sets out that “the interest rate for the period between 1st September and the following 31st August will be the daily rate which would result in an APR for a loan on the terms of this loan equal to the RPI rate. The lender will tell the borrower what the new rate is each year.” (“RPI rate” means the percentage increase between the retail prices all items indices published by the Office for National Statistics for the two months of March immediately preceding the 1st September on which the interest rate is changed or, if that retail prices index is not published, another index which reflects price increases which the lender gives the borrower details of).

    So for mortgage-style loans made up to 1998, the interest terms set out in the credit agreements meant that the rates prescribed in regulations must maintain the value of that amount in real terms; and for mortgage-style loans made after 1998, the credit agreements set out that the rate would be the RPI rate for the March of that year to apply from 1st September. So that is why the rate could not be set at above RPI in 2009/10 for mortgage-style loans.

    For post-1998 income-contingent loans, the loans are made under section 22 of the Teaching and Higher Education Act 1998 (http://www.legislation.gov.uk/ukpga/1998/30/section/22) and subsection (3)(a) sets out that regulations may be made “for such loans to bear compound interest at such rates, and calculated in such manner, as may be prescribed from time to time”. Subsection (4)(a) sets out that “the rates prescribed by regulations made in pursuance of subsection (3)(a)—
    (i) shall be no higher than those which the Secretary of State is satisfied are required to maintain the value in real terms of the outstanding amounts of such loans, and
    (ii) shall at no time exceed the specified rate for low interest loans”.

    This section was amended by section 76 of the Education Act 2011 (http://www.legislation.gov.uk/ukpga/2011/21/section/76) which replaced the above subsection (4)(a) with “the rates prescribed by regulations made in pursuance of subsection (3)(a) must be—
    (i) lower than those prevailing on the market, or
    (ii) no higher than those prevailing on the market, where the other terms on which such loans are provided are more favourable to borrowers than those prevailing on the market” to apply “…in relation to a student who begins a course on or after 1 September 2012, except in such circumstances as may be prescribed” (subsection (3)).

    As I point out in response to this piece (http://wonkhe.com/blogs/the-battle-of-ideas-in-education-is-being-lost-by-all-sides) by Wes Streeting (as I think it’s disgraceful that MPs like him can complain about retrospective changes when it was his party that set the precedent for them), the interest rate was set each year in new student support regulations.

    For example, regulation 93 of the Education (Student Support) Regulations 2008 (http://www.legislation.gov.uk/uksi/2008/529/regulation/93/made) set out that the rate would be the March 2008 RPI rate (subject to the low interest cap of base rate + 1%) and regulation 3(4) (http://www.legislation.gov.uk/uksi/2008/529/regulation/3/made) stated that “regulation 93 applies to loans with effect from 1st September 2008”.

    This practice of prescribing a new rate in the student support regulations was discontinued after 2008, and instead the repayment regulations were revoked and re-enacted as the Education (Student Loans) (Repayment) Regulations 2009 and included a new regulation 21 (http://www.legislation.gov.uk/uksi/2009/470/regulation/21/made) which set out the methodology for setting future interest rates and included a new clause stating “…if the Authority determines that student loans will bear interest…”. These regulations were rushed in on 1st March 2009 in anticipation of a negative RPI rate and this was a very sneaky move (I described it as ‘underhand’ in response to Wes’s piece) on the part of the Labour Government. Instead of setting a new interest rate at the March 2009 RPI rate (subject to the low interest cap) in the student support regulations for 2009, they re-enacted the entire repayment regulations to include a new clause allowing them to wriggle out of setting a rate at all (which essentially made the rate 0%).

    The following articles reported on this underhand change of practice on setting interest rates:

    http://blogs.thisismoney.co.uk/this_is_money_blog/2009/05/student-loan-interest-rate-decision-is-a-disgrace.html
    http://www.thisismoney.co.uk/money/saving/article-1674618/Government-breaks-student-loans-pledge.html

    Clearly the statement that “borrowers pay back the same amount that they borrowed” in SLC literature held little weight when the protections were not included in the relevant legislation (as the legislation and regulations always take precedence over the SLC guides), which is why I say that “terms that were never legislated for cannot really be said to have ever been terms at all”.

    The above articles include the following explanations from the then Labour Government attempting to justify the retrospective changes of intentions/practice on both setting the interest rate using the March RPI and uprating the £15,000 repayment threshold from 2010 annually by RPI:

    “The decision [on interest rates] has been taken because loans are already well subsidised, and it would be difficult to justify to taxpayers a situation whereby
    students take out loans in 2009/10 and their balances are immediately reduced.”

    “The rate of interest makes no difference to borrowers’ monthly repayments. Borrowers repay 9% of their earnings over the income threshold of £15,000.
    Whatever the rate of interest is, that monthly repayment will not change.”

    “The repayment threshold will also remain at £15,000 for the next 12 months. Had the Government used a negative RPI rate to calculate this, the threshold would
    have reduced and borrowers would have started repaying earlier and ended up paying more. Setting interest at 0% has prevented this from happening.”

    Of course, the repayment threshold ended up staying at £15,000 until 2012 and missed out on an increase in 2011 by the much higher March 2010 RPI of 4.4%, meaning even if it had have gone down slightly in 2010, this would have been more than made up for the following year.

    I can’t agree with you when you say “the increased costs for most borrowers that these retrospective changes generate will be much smaller than the impact of the threshold freeze announced in 2015, if only because on average debts are much higher for post-2012 students”. For students like me who have also borrowed much higher amounts post-2012, the 5 year repayment holiday change could have potentially saved thousands if I had the option to break off from loan repayments during times of earning high income.

    “Once terms are decided, they should be passed into law without delay” – totally agree with you here. I can’t understand why Governments often wait until the last moment to legislate for terms as this leaves time (and makes it easy) for the terms to be changed or dropped altogether if Government later changes before the terms are legislated for (e.g. in the case of repayment holidays, the department and ministers that announced them changed in the meantime from DIUS to BIS and the BIS ministers (Mandelson was Secretary of State and Lammy was universities minister) chose not to implement them (retrospectively changing the intended terms for existing borrowers). They were not due to take effect until 2012 so even if BIS had not abandoned them, the new Coalition Government may well have chose not to legislate for them.

    The threshold changes are another example of this lack of legislative action/protection. As I wrote in response to Nick Hillman’s piece on the HEPI site, the Government in 1998, when it set the threshold at £10,000 had intended for that threshold to increase over time with average earnings but only legislated for a nominal threshold of £10k with nothing about its future level included in the regulations. Come 2003, the Government’s White Paper (http://webarchive.nationalarchives.gov.uk/20040117001247/http://dfes.gov.uk/highereducation/hestrategy/pdfs/DfES-HigherEducation.pdf) proposes to “raise, from April 2005, the threshold at which graduates have to start repaying their fee
    contribution and maintenance loan from £10,000 to £15,000”. This document (https://web.archive.org/web/20040117002006/http://www.dfes.gov.uk/hegateway/uploads/final%20RIA%20V8.pdf) from the subsequent Higher Education Act 2004 set out that “from April 2010 it is intended that it should increase in line with inflation” and “…since the cost of the current loans is assessed on the basis that the threshold will rise in line with earnings growth, there are offsetting savings associated with uprating by inflation instead”. However – as noted above – the threshold could not increase by RPI in 2010 as it was negative, however it didn’t increase in 2011 either when it wasn’t negative. The Government actually left the further review to the Browne Review which recommended the Government increase the threshold to £21k as it hasn’t increased since 2005, but the Coalition Government chose not to apply this to all borrowers, and instead chose to uprate by inflation from 2012 (essentially resulting in a 2 year delay to implementing Labour’s original intended policy).

    The freeze on the £21,000 threshold is another example of this lack of legislative action resulting in a change in the meantime – the Government changed between 2010 when the uprating was announced and 2017 when it was meant to take effect.

    Of course, even if the above had been implemented into the regulations, the ‘get out’ clause still allows the regulations to be retrospectively amended but the principle that Martin Lewis often speaks of about retrospective changes to legislation breaking the principles of good Governance then comes into play – and indeed so far there has been no retrospective changes to the core repayment terms that have disadvantaged borrowers (as you said, the change in the threshold from £10k to £15k in 2005 was not unfavourable, nor was the 2011 amendment which finally legislated for annual increases to that threshold by RPI to take effect from 2012).

  5. Brian says:

    I appear to have copied the link to the post-1998 mortgage-style credit agreement twice. The credit agreement for pre-1998 mortgage-style loans is here: http://www.slc.co.uk/media/5208/pre_98_ms_credit_agreement.pdf.

  6. Brian says:

    Some more information on the retrospective scrapping of repayment holidays which I’m actually quite shocked about:

    As previously quoted in one of my above posts, these were originally announced on 5th July 2007 by the DIUS Secretary John Denham as a 5 year repayment holiday available to university starters in 2008 or later.

    In a written statement in the House of Lords on 20th July 2009, Peter Mandelson as BIS Secretary (https://www.theyworkforyou.com/wms/?id=2009-07-20a.149.2&s=speaker%3A10412#g149.3) retrospectively changed the number of available repayment holiday years to 2 from the originally promised 5:

    “…the costs of supporting the extra students will be met through reprioritising existing budgets and reducing the optional five-year holiday on repayment of student loans to two years.”

    “The repayment holiday on student loans was announced in July 2007. All students starting a higher education course in 2008-09 or later, taking out their first student loan and having a repayment start date of April 2012 or later are entitled to a repayment holiday. The intention is to help borrowers to manage their finances if there are other changes in their lives. Qualifying borrowers will now be offered the choice of putting their student loan repayments on hold for up to two years as opposed to up to five years as announced in July 2007.”

    This was echoed by David Lammy in the House of Commons (https://www.theyworkforyou.com/wms/?id=2009-07-20d.87WS.1&s=repayment+holiday+speaker%3A10678#g87WS.2) and reported on in the media. For example here (http://www.independent.co.uk/news/education/education-news/students-five-year-repayment-holiday-on-loans-is-abolished-1754393.html) which quotes Martin Lewis as saying “while a two-year repayment holiday is a good addition, it is no way as good as a five-year break, which allows students to buy a property or sort out their other debts” and “it will be disappointing for many students, but it is interesting that yet again, the Government seems to be chipping away at [the student loan system] piece by piece” (i.e. not challenging it as a retrospective change which it clearly was, being announced well after 2008 starters had taken out loans).

    It turns out that the change to an optional 2 year repayment holiday was included in the Labour version (pre-May 2010) of the 2010/11 SLC guide to terms and conditions (http://webarchive.nationalarchives.gov.uk/20100315132433/http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@educ/documents/digitalasset/dg_183903.pdf) on page 18:

    “If you live in England and the following conditions apply, you will have the option of taking a Repayment Holiday (a break in making your student loan repayments) when it is time to start repaying your loan:
    • You started a higher-education course in 2008/09 or later; and
    • This is your first student loan; and
    • You have a repayment start date of April 2012 or later
    If you are eligible, you will be able to take one or two years off repaying your loan from April 2012 onwards. Repayment Holidays must be within tax years. Any time you take as a Repayment Holiday will extend the usual 25-year repayment period by the length of the break you take. So if you were to take a Repayment Holiday lasting two years, your student loan would be written off after 27 years, rather than after 25.”

    However it was in the post-May 2010 version of the 2010/11 guide to terms and conditions (http://webarchive.nationalarchives.gov.uk/20100519181642/http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@educ/documents/digitalasset/dg_183903.pdf) that it disappeared, which means it was the Coalition Government that did not honour them, scrapping them almost as soon as they came into office. It seems they decided both to delay the first uprating of the £15,000 repayment threshold (which was postponed for 12 months from April 2010 as a result of the negative RPI in March 2009) until 2012 instead of 2011 (or raising it to £21k as the Browne review recommended), and scrapped the (already scaled back) repayment holidays policy.

    Indeed an NUS policy briefing here (http://nussl.ukmsl.net/pageassets/campaigns/welfare/social-policy-briefings/SPB-sfupdate10.pdf) which is dated July 2010 confirms “the planned student loan repayment holidays have now been scrapped altogether (having been reduced from five years to two years previously)”.

    I a letter to the NUS (http://nussl.ukmsl.net/asset/Blog/23/Willetts.pdf) David Willetts stated that “there have been no changes to the pre-2012 ICR loan repayment terms since 2010, other than for a pre-planned annual increase in the repayment threshold in line with inflation (RPI)”. Clearly, repayment holidays and the planned uprating from 2010 were not yet “terms” as they had not been implemented into the legislation (repayment regulations). This is the same as the £21,000 threshold uprating – which was also not a “term” for post-2012 ICR loans as it was never implemented.

    On the retrospective change to setting interest rates practice in 2009/10, NUS president Wes Streeting said (http://www.thisismoney.co.uk/money/saving/article-1674618/Government-breaks-student-loans-pledge.html): “In the context of a recession, this is the best deal students and graduates could have expected. NUS will continue to monitor the rate of interest on student loans, and make sure the Government is aware of students’ concerns.”

    So Martin Lewis and Wes Streeting – at the time of previous retrospective changes – did not challenge them and it is therefore totally hypocritical for them now to argue that retrospective changes are ‘disgraceful’; obviously in the case of Martin Lewis it is simply plain wrong to argue that they are unprecedented.

  7. Brian says:

    There are some interesting letters from the universities minister David Lammy relating to the March 2009 negative RPI decisions that had implications for both the interest rate to apply in 2009/10 and the policy of annually uprating the repayment threshold from April 2010, here:
    http://forums.moneysavingexpert.com/showpost.php?p=24034335&postcount=90

  8. Brian says:

    Thought I would just update to clarify finally that repayment holidays were actually scrapped by the Labour Government on the quiet in and among Alistair Darling’s final Budget in March 2010, although it was buried deep within a press release and no formal announcement was made regarding the policy being scrapped (despite it appearing in 3 SLC guides to the terms and conditions). This was a political decision to reprioritise student finance budgets as part of the money saved by withdrawing the option of repayment holidays from existing post-2008 starters was used to better the Conservatives’ policy of funding a further 10,000 student places for academic year 2010/11 – Labour announced an additional 20,000 student places in the March 2010 Budget going into the General Election. This is in contrast to the consultation approach pursued by the Conservatives in 2015 when it withdraw the intention of uprating the £21,000 repayment threshold for the time being.

    Repayment holidays were withdrawn so quietly that it took a FOI request to confirm for definite when they were scrapped (see below):

    https://www.whatdotheyknow.com/request/369590/response/905009/attach/2/DOC051216%2005122016160315.pdf

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  10. aninterestedparty says:

    At the end of the day, the actual student loan ‘contract’ has always been pretty open – the government can change the terms and conditions any time and in any way it chooses… and kids sign it because they have no other choice if they want to go to university.

  11. Brian says:

    On the issue of retrospective changes to repayment thresholds, there are now 2 extremely insightful freedom of information releases on how the policy on this developed with the pre-2012 threshold (notably hardly anyone seemed to acknowledge prior to me raising it that retrospective changes to thresholds and policy intentions occurred with the pre-2012 threshold). There was much misinformation and misunderstanding from the likes of Martin Lewis when the post-2012 threshold was frozen which led to piece’s like this one by John Thompson.

    In order to further people’s understanding of the retrospective changes which occurred with the pre-2012 threshold I am sharing these FOI releases.

    The first shows how the threshold policy developed under the Labour Government. Some people realise that it began life at £10,000 from April 2000. Most people recognise the £15,000 level which it was raised to in April 2005 (not 2006 as stated in the submission below – it seems some people even in Government confuse the year the threshold was raised with the year the new top-up tuition fees came in, which shows the threshold was meant to be reviewed separately to any changes in tuition fee policy). What very few people realise is that it was meant to be raised annually by RPI (at least in the short term, with raising by earnings growth a longer term aim) from April 2010. However the spanner in the works came when RPI was negative (March 2009) at the point it was first meant to increase in April 2010. The following submission shows the 3 options that were considered to the then Minister (David Lammy): (1) decease the threshold by RPI (which happened to be -0.4% in March 2009); (2) freeze it at £15,000 for a further year and uprate by RPI from April 2011; and (3) uprate by earnings growth instead from April 2010. The recommended option was (2) but it was not what happened. The first part happened, as the threshold was frozen at £15,000, but it was not uprated by the March 2010 RPI (4.4%) from April 2011.

    https://www.whatdotheyknow.com/request/353572/response/967020/attach/3/Annex%20A%20Repayment%20Threshold%20Redacted%20FOI.pdf

    This following freedom of information release neatly dovetails with the above and explains what happened next after the change of Government in 2010. Following much political wrangling in the Coalition Government, an announcement was made in December 2010 by the Secretary of State (Vince Cable) to uprate the threshold in 2012, 2013, 2014 and 2015. The submission to the new Minister (David Willetts) in February 2011 contained this recommendation to implement threshold uprating from April 2012 – presumably this was the earliest that the uprating could now start given that April 2011 was nearing and the above submission shows that practical time sensitive issues with HMRC and the devolved administrations need to be considered. Notably, in the below submission, paragraph 13 identifies that “the inflation increase in the repayment forecast has already been factored into the RAB forecast, so there is no financial impact.”

    https://www.whatdotheyknow.com/request/353572/response/939043/attach/5/Gibney%2020936%20Annex%20B.pdf

    However, as the first submission shows, the RAB forecast and budget calculations were based on the threshold increasing by 2.8% year-on-year from April 2010, so the fact it was maintained at £15,000 until April 2012 was actually a financial windfall to the Exchequer.

  12. Brian says:

    And… just to link everything up nicely, there’s also this FOI release which is the submission to David Willetts on options for how repayments would be handled for borrowers with both pre-2012 and post-2012 loans (interaction between the two thresholds):
    https://www.whatdotheyknow.com/request/230088/response/579884/attach/4/Annex%202%20Submission%20Dual%20loan%20repayments.pdf
    As a borrower in precisely this position, to reiterate, I expect (and hope) that the £21,000 level is maintained until the end of this next Parliament (which will now finish in 2022, not 2020) at which point the post-2012 threshold should be abolished as the pre-2012 threshold should by then have reached or be very close to reaching £21,000 in April 2022 or April 2023, given RPI forecasts.

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