In support of early student loan repayments (and Coalition negotiation)

by Stephen Tall on February 16, 2012

One of the most interesting (and, I think, healthy) aspects of Coalition politics is the insight into the give-and-take nature of negotations it provides. In the bad-old-Labour-days, the Blair/Brown disputes — which were rarely about actual policy — leaked out into the public domain through highly personalised off-the-record briefings. There’s (generally) a refreshing honesty to the candour of arguments within the Coalition.

Here’s today’s example

A plan to impose penalties on students who pay university loans back early has been scrapped by the government, amid fears hundreds of thousands of people would be hit with unfair charges. Ministers were considering levying annual charges of about 5% on excess payments to prevent wealthier students escaping interest charges on 30-year repayment plans.

However, it is believed that David Cameron has negotiated to kill off the Liberal Democrat scheme, as part of a deal that will allow Vince Cable, the business secretary, to appoint his chosen candidate as the government’s university admissions tsar.

So Vince gets Les Ebdon as his university access tsar, Dave gets his way on ending penalisation of early loan repayment.

Unsurprisingly, the Government’s announcement that early loan repayment is to be scrapped has proved controversial. To many it shows that the new system of fees will entrench privilege, with the children of rich parents released early from debt repayment obligations, while those from low-to-average backgrounds face 30 years of debt repayment if they earn more than £21k pa.

I get the argument, and on one level it’s true. But that’s to see the fees structure as a way of redistributing wealth, something it was never designed to be. What the system is about is offering an affordable, sustainable and progressive funding system for the consumer (student) and provider (university). Oh, and also shaking up the HE sector with some revitalising marketisation. If you want to solve inequality there are much more effective methods.

Besides, this is not simply about the children of wealthy parents. The vision of higher education is that it enables anyone with the talent to succeed to do so, no matter what their background. Yet early loan repayment penalties will hit the poor, aspirational kid who lands a high-earning job, or who makes a success of their own business, just as much as those ‘rich daddies’ kids’. For me, stopping a poor kid who’s ‘made it’ from repaying their loan when they want to is fundamentally illiberal.

For all the other (very good) arguments why penalising early loan repayments is a bad idea, I refer you to MoneySavingExpert Martin Lewis’s blog, Student loans – the seven deadly sins of early repayment penalties, especially this point:

3. It penalises people for good financial management and success.

Preventing overpayments penalises people for good financial management and post university success.

For years we’ve educated our youth into debt when they go to university, but never about debt. This structure exacerbates that, it is extremely poor financial education and goal setting for our student populatation.

We have already lost the stigma of debt; to also lose the stigma on the urgency to repay is potentially devastating.