The government has missed an opportunity to alleviate the impacts of debt

Claire Callender explains how student loans designed to promote opportunities can restrict them too

Claire is professor of higher education policy at Birkbeck and professor of higher education studies at UCL Institute of Education.

What does it feel like to be saddled with £46,000 of student loan debt, knowing you will repay it for most of your working life – but probably never pay it off in full?

Will the government’s changes to the student loan repayment system in England just announced make any difference? Will it be a “fairer system” as the government claims?

And do the proposed reforms address current graduates’ concerns about loan repayments?

The key changes, to be introduced for new entrants from 2023, are:

  • Reducing the student loan repayment threshold – the point at which graduates have to start repaying their loans, from £27,295 to £25,000;
  • Extending the period before any outstanding debt is written off from 30 to 40 years; and
  • Abolishing the real interest rate on loans and cutting the rates to RPI, meaning that no graduate would repay more than they borrowed in real terms.

It looks like the voices of graduates repaying the loans have not been heard. In our research, based on 98 interviews, graduates speak up. They provide important insights into the realities of high tuition fees and the resulting material and psychological burden of student loan debt, which hangs over their lives and feels never ending.

None of the graduates we interviewed will be affected by these reforms because they are not being introduced retrospectively – creating a more complicated system and more inequalities and unfairness between different cohorts of graduates. But we can learn from the graduates’ experiences of student loans.

No worries

Those who devised the student loan repayment system argue graduates have nothing to worry about. Repayments are based on ability to pay while outstanding debt is eventually forgiven. And they see the system as progressive, benefiting lower paid graduates.

But despite these inbuilt safety nets, graduates experience student loan debt as a burden, albeit to different degrees.

John thinks his debt is:

…like a ball and chain… it’s always present and you know it doesn’t get paid off and I feel like it’s currently almost like a heavy bag that I have to carry.

Mary characterises the debt she owes as:

…an insane amount of money… just ridiculous, it’s beyond comprehension.

For some, the sum is so large it is meaningless and results in graduates distancing themselves from the debt as a way of coping. For others, the sheer size of their debts weighs upon their minds, it is something they think about a lot causing anxiety and despair.

The proposed government reforms will not make any difference to the feelings of graduates like John and Mary. Indeed, worst affected are lower-middling earning graduates who will have to start repaying their loans earlier and will repay more in the years after graduation because of the lowering of the repayment threshold. Lifetime repayments will be higher for the bottom 80 percent of graduate earners under the new system, but lower for the top 20 percent. Is that fair and progressive?

Importantly, the total amount students borrow will not change significantly. DfE calculates the freezing of tuition fees will reduce total graduate debt by just £780 – this for students will still graduate with average loan debts of just under £50,000.

Less interest

The planned reduction in loan interest rates, however, would be welcomed by the graduates we interviewed. The graduates in our study are annoyed about the interest their loans attract, especially when it leads to ever-growing debt. They believe the interest rates are too high and unfair, especially post-2012 graduates paying interest of up to inflation plus three per cent.

Paul watching his debt constantly rise despite his repayments, declares:

…it makes you feel sick and horrible… an absolutely horrible feeling inside your chest, your stomach…

But although future graduates will be spared real interest rates, graduates who started their studies between 2012 and 2023 will not. They will have to continue paying exorbitant interest rates. Is that fair?

In contrast, government plans to extend the period when outstanding loan debt is written off by another ten years will exacerbate feelings that the repayment period is never-ending.

Peter explains after ten years of repayments:

…I don’t see a light at the end of the tunnel… I will just be in debt for the rest of my life.

The knowledge that their debt will likely never be repaid fully only aggravates the emotional and psychological toll. They have borrowed money that they cannot repay. Even with the proposed reforms to loan repayments, low-paid graduates will never pay off their loans in full, and especially women.

The burdens of debt

The stress associated with large amounts of student loan debt especially effects post-2012 graduates who factor their student loans into their decision making and life choices. It can have a negative impact on their decision to undertake further study, their job and financial decisions, undermining graduates’ quality of life and life goals.

It can influence their day-to-day expenditure, such as cutting out some discretionary spending so they can afford their loan repayments, and their long term-saving, such as a deposit for a house. Clearly, student loan debt can change graduates’ behaviour in ways that can potentially damage their lives and their aspirations. The planned reforms will not alter this.

In the absence of alternative sources of financial support, loans allow access to higher education among those who otherwise would be unable to go to university. But as these graduates’ experiences show, student loans designed to promote opportunities can restrict them too. The real winner of the government’s planned reforms is the Exchequer who will save millions of pounds, at the expense of graduates.

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