Playing the frame game on student loans

The FT story on the graduate repayment threshold in England reminds us that a lower threshold was one of the Augar review recommendations.

Jim is an Associate Editor at Wonkhe

If we must have an income-contingent loan scheme (other forms of graduate and/or taxpayer contribution schemes are available), you ideally need a conceptual peg for the level of income at which contributions become acceptable.

I can make a decent case, for example, for looking at the costs faced by the average young graduate (including rapidly rising rent, the new NI hike, or repayments for commercial debt incurred because student maintenance support is inadequate) and deciding to try to maintain a certain level of disposable income.

That kind of “low tax, pound in your pocket” stuff for individuals is the sort of thing the Conservatives used to be good at, and arguably still are… as long as you’re over 55.

Anyway, Augar didn’t do that “personal finances” framing. Instead it went for a version of the graduate premium argument – proposing that there should be a stronger expectation that student contributions will be made “once a financial benefit is secured”. It said:

For students in degree-level education we therefore recommend that the most suitable threshold is median non-graduate earnings.

OK. Let’s accept that logic for a minute.

When Augar came out in 2019 it was using 2018-19 prices, which meant reducing the threshold from £25,000 to £23,000. Funnily enough, that magical £23,000 figure then reappeared in that FT article.

But, you know, inflation. Later on Page 170 of Augar, we got this:

However, the panel would expect this change to be implemented… in academic year 2021/22. At this point – on current earnings forecasts – the recommended threshold would have risen to approximately £25,000, around the same nominal level as today…. Once introduced, that threshold should continue to increase with average earnings over time, as is currently the case.”

Well, in 2020 the median non-graduates earning figure was £25,500, the 2021 figure is projected to be £26,500 and the 2022 figure is projected to be £27,105 – almost exactly the same as where the threshold is now! And those projections don’t take into account the recent labour market issues that are sending some salaries upwards.

That doesn’t half present a problem if you’re hoping to hang your hat on that conceptual peg we noted earlier. But if you’re a former universities minister, you could always take the argument down a peg or two.

Enter David Willetts, who’s in the Telegraph today arguing that familiar grads v non grads thing:

So it is right to expect graduates to pay back so that their higher education is not funded by taxpayers earning less than they do.”

But he’s being crafty. In the article instead of taking the median non-graduate salary in general (£25,500), he quotes the median non-graduate salary for people in their twenties (£21,500), a figure buried in this DfE chart – and then as if by magic, £23,000 starts to look generous.

There’s also fun with frames when he gets onto interest. As we’ve discussed before, if you frame the scheme as a loan you want to respond to concern about debt levels and helping people out of debt by enabling them to repay – and as such:

The interest rate on debt could also be cut. It is probably the most hated feature of the system. But it is just part of the real problem which is the terrible combination of the low repayments because of the high threshold and then the high interest rate so that for too many graduates their debt is rising every year. That is depressing for graduates and their parents and politically toxic. Polling shows that graduates and their parents would rather get on with paying their loans back, even though they are nothing like commercial debt.

But as we know, lowering interest rates would only benefit rich male grads – while raising them would both generate more back into the system and would only hit very well off male graduates.

It all reminds us that when politicians choose political frames (“it’s a loan, we need more of the loan back”), other ones are always available. But it also reminds us that even when we play in the frame that’s been given, politicians like to paint solutions as inevitably flowing from that frame – but if we scratch a bit for the detail, other solutions are always available too.

3 responses to “Playing the frame game on student loans

  1. Just a thought – what would be the downsides of a lower-repayment threshold but a 0% rate of interest?

    Every graduate who left university would owe the same amount.
    Every graduate who paid off their loan at all would pay off the same amount, regardless of earnings / how long it took them to pay it off – a positive?
    Higher inflation / interest rates, and so higher wages, would increase tax take – neutral at worst?
    It could be balanced to make the system no more expensive in the long-term.

    Politically – would certainly be attractive?

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