Ministers face a probe into whether or not they should cut the cost of student loans after a growing outcry over graduates being saddled with large repayments which will never clear their debt.
The Commons Treasury Committee is opening a new investigation to determine if the current system of university finance is fair for young people.
Its chair, Labour MP Dame Meg Hillier, said she feared that the “goalposts” for graduates may have “been moved” due to tweaks to the repayment terms which apply to those with outstanding debt and which they have not explicitly consented to.
Among the questions that the committee will probe over the coming months are whether student loans should be entirely interest-free, whether the government should be able to change the rules retrospectively, and whether graduates who are repaying their loan end up being hit with unfairly high tax rates.
The investigation will also ask more fundamental questions such as whether the “loans” should be renamed entirely, whether the state should subsidise degrees more or less than it currently does, and whether younger age groups are getting a worse financial deal than older people.
Anyone over 16 can contribute their experiences
Hearings will be held with experts, education industry insiders and Treasury ministers, while anyone over 16 can “contribute their experiences directly to the inquiry” by taking a survey on the internet.
The committee’s final report, likely to be published in the autumn, is expected to make specific policy recommendations about how to improve the system.
These recommendations will not be binding on ministers but if they include calls for a major overhaul of how university finance works they will add to the pressure for a rethink of the system which was introduced by the coalition government a decade-and-a-half ago.
Hillier said: “This inquiry is about fairness. Fundamentally, what we’re asking is, have the goalposts been moved in a way which is unfair to graduates?
“It’s critical that the model for financing university education is sustainable but there are questions over whether decisions such as freezing the threshold for repayments is placing the burden unfairly on younger people.”
Most courses charge maximum course fees
Annual tuition fees were set at a maximum £9,000 in 2012, and have now risen to £9,535. The vast majority of courses charge the maximum amount, with the upfront cost provided by the government in the form of a loan unless a student or their parents choose to pay themselves.
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The repayment terms differ depending on what year a graduate has entered university, but they all involve paying a percentage of income above a certain threshold, with the debt increasing by a rate which is determined by inflation each year and a maximum repayment term after which the loan is written off.
Rachel Reeves has frozen the repayment thresholds, prompting anger from graduates who will be paying a larger proportion of their overall income as their wages increase with inflation.
The Chancellor has said she is considering ways to improve the system, but any significant changes could prove unaffordable at a time the Treasury is trying to control borrowing and avoid further tax rises.
The questions MPs are asking
1) Should a student loan incur interest?
1b) Should the interest on a student loan be dependent on income?
1c) Should the interest on a student loan be fixed to RPI [Retail Prices Index], CPI [Consumer Prices Index], or another measure?
2) Are interest rates above the rate of inflation on a student loan fair?
3) Was it fair for the government to block the interest rate on student loans from going negative when the measure of index the loan was pegged went negative?
4) Should student loans be branded as loans, or as something else? Does calling a student loan a loan exacerbate the dissatisfaction with the product among its users?
5) What proportion of a student’s university education should be funded by the student versus being subsidised by the state?
6) Should the terms of a student loan be able to be changed by government once the loan has been taken out?
7) Does the process around student loans provide enough information, in a clear and fair form, given that this may be the first credit contract for many people?
8) Should loans from the Student Loan Company be compliant with FCA rules and principles and the Consumer Duty?
9) Does changing the terms of a government loan contract once it has been entered into erode trust in government?
10) Might changing the terms of a loan once it has been taken out affect future take up of student finance through lack of certainty in the loan product?
11) Are there examples of government unilaterally changing the terms and conditions of finance provided to companies or pensioners or other groups in the economy?
12) Should the incomes of higher-earning graduates be used to subsidise the loans of lower-earning graduates?
13) How does the student loan system interact with the taxation system, including marginal rates?
14) Do student loans currently deliver equitable shares of burdens and benefits between generations?
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