Our students face the highest student loan interest rate in western Europe

© Selena Sheridan
© Selena Sheridan

We all know that the student loan system is rubbish. £9,000 fees combined with a lack of job prospects are bad enough, but The Guardian showed last month that the Government has been advised to make repayment terms more stringent for graduates. It turns out that the small print on that massive loan allows for the Government to adjust the interest rate and rate of repayment on the loans at any time. Which is nice of them.

But that’s not all. Research published this week by the Intergenerational Foundation (written by this veritable blogger) has found that graduates in England and Wales are currently charged twice as much interest on their loan (6.6%) as the average across the OECD (3.3%). The interest rate is also the highest in Western Europe, the third highest in the OECD.

The only two countries charging more than this Government for tuition are Mexico and the Czech Republic, both of whom have public universities that charge exceptionally low fees. Tuition fees in England and Wales are the highest headline figures of any public university system in the world. Yeah. Ouch.

Recent research has shown that the overall cost to the Treasury of the higher-cap, £9,000 scheme is far more than under the Labour cap of £3,000, with any hope of savings rather forlorn. The impact of this lack of foresight will likely fall most heavily on future generations via higher income tax, climbing retirement ages and a rising cost of living.

But this has been well documented. The Government continues to harden the loan system for students, even in the same month of the most recent Budget speech this year in which pensioners’ benefits were – once again – safeguarded and long-term savers were protected. And despite the austerity measures causing a disproportionate impact on the younger generations, applications to UK universities remain high and, in fact, increased 3.5 per cent for the 2013/14 intake.

The repayment plan for UK graduates has not been so heavily scrutinised. It has been ignored, somewhat, that the interest rate on student loans has more than doubled since 2010, from the APR rate of 1.5 per cent to the RPI rate of 3.1 per cent. This rate increases to RPI plus 3 per cent when graduates earn more than £21,000, a rate which (it is worth repeating) is the third-highest rate across the OECD, combined with the third-highest tuition fees.

Upon graduation, whether their course is completed or not, graduates are liable to repay their loans and start doing so once they earn above £21,000, and not before. 9 per cent of any earnings over this threshold are owed to the Treasury. While studying, interest on the loan matches RPI, currently 3.6 per cent, + 3 per cent. After graduating, the rates change as shown in the table below.

Under the Labour Government, students borrowed at a rate that matched APR (currently 1.5%) but the current loan scheme switched the interest rate to RPI, meaning students are to accrue a heavier interest burden on their loan. Now, since the interest on UK loans will in most cases simply not be repaid (whether or not graduates can find work) the real rate of interest is used primarily to bend the distribution curve of repayments to make the scheme more progressive.

For example, a 2016 law graduate from a low-income family earning under £25,000 studied for their 3-year law degree in London. In order to take the course, they were entitled to 3 years with the maximum maintenance loan (£7,675) offset by the maximum maintenance grant (£3,354), giving a total maintenance loan for those 3 years of £12,963. On top of this, the tuition fee loan at £9,000 per year totals £27,000 giving a total outstanding loan of £39,963.

Now, suppose they graduate and are set to earn £42,000 per annum while taking their training contract at a City law firm. They are obliged to pay 9% of their earnings over £21,000 which would total £1,890, or £157.50 per month. By the end of their first year since graduation, they have repaid £1,890. However, earning over £41,000 requires our law graduate to pay RPI + 3 per cent, totaling 6.6 per cent. This interest rate applied to their loan of £39,963 adds, in the first year, £2,637. As such, they are not likely to begin repaying their loan – or, indeed, the interest accrued on the loan – until they earn a significantly higher amount. (They would not begin to meet the interest repayments until they were earning in the region of £51,000.)

Suppose our graduate, perhaps owing to tough economic conditions, cannot secure a training contract and, instead, takes up work as a paralegal, and let’s suppose they are earning £22,000 per annum. They owe 9 per cent of their earnings over £21,000 (so £1,000), which would total £90, or £7.50 per month. Their annual interest rate matches RPI (and they would not accrue the additional 3 per cent on top of RPI until they were earning over £41,000) – at 3.6 per cent. In the first year, the interest on their loan is £1,438. Clearly, a graduate on this salary would not make a substantial dent in their accrued interest, let alone the outstanding loan amount.

Though the UK holds a position of esteem in global higher education, with universities like Oxford, Cambridge, LSE and UCL continuing to lead global league tables, it is clear that the value of a UK degree is very high, in comparative terms. As such, one would expect the fees, to an extent, to reflect this.

However, the current situation means that UK students are agreeing to pay fees which they may never meet, on the basis that they agree to pay at a rate which, combined with income tax, means they may never pay off the capital on their loans. Dr Andrew McGettigan has claimed that the “income-contingent repayment loans offered to students are also future-policy-contingent, potentially creating an indentured class of graduates from whom higher repayments can be extracted.”

This tax, on top of a necessarily longer term of repayment on loans to cover the increased fees, means that graduates are settling a significant bill left by the Government’s austerity plans. With high youth unemployment, a serious fall in first-time buyers, rapidly increasing rents and absent growth, the high rate of interest on student loan repayments is another impertinent assault on younger and future generations on whom the new system places atrocious financial burdens compared with the relative comfort of many of the older generations.

The full report, ‘Squeezing Our Students? An English/OECD Comparison’, is available here.

This piece also appeared on the Huffington Post.

This report was also covered by The Telegraph and the Huffington Post.

Future generations are being priced out of postgraduate study

(This is a blog for the think tank Intergenerational Foundation, also on their website.)

A few months ago, I was offered a place on a master’s degree in history at Oxford. It’s an achievement I’m pretty proud of. Not many people get an education like that so I felt privileged to get the chance. But I can’t go. Like thousands of young graduates, the option to go on to postgraduate study is either rapidly diminishing or completely out of reach. Owing to a massive increase in postgraduate fees, a lack of systemic (or, well, any) support from the government and rising youth unemployment, the academy door is being slammed shut in the faces of students from lower socio-economic backgrounds.

Here is the problem. Since 1990, the number of postgraduate students in the UK has risen five-fold. And while that number is not wildly dramatic compared to the increase in undergraduate students (doubled across the OECD between 1995 and 2008), it is still a radical acceleration in the market of graduate programmes. On top of this, postgraduate tuition fees have increased by an average of 31.8% per cent between 2003 and 2009, even before the government’s recent cuts in higher education funding. And only an estimated 4% of students from lower socio-economic bands progressed onto master’s and Ph. D programmes in this same period.

Why? It’s obvious. Whatever you think about tuition fees, loans and funding for undergraduates – in fact, forget what you think you know – the postgraduate situation is wholly different. Apart from a few courses, and these are very few, there is no system of support for postgrads. None. Zilch. Unlike undergraduates, who are able to (at worst) claim a loan from the government to cover their fees, postgrads are not so lucky.

The vast majority are self-supported, often studying part-time (if the course allows it – lots at Oxford, including mine, don’t) so as to divide the massive tuition fees over two years and earn some additional income, but only if they can get a job. The job market for young people is not exactly easy – especially because a degree over-qualifies many for the kind of flexible part-time work they need to pay for their studies. Those who can study full-time are either (a) on a non-means tested scholarship or grant given by a relevant body or by the university, or (b) absolutely loaded and/or such good chums with the tooth fairy that they can afford upwards of £14,000 for fees and living costs. History at Oxford, a 9-month programme, costs £17,000.

Scholarships are very rarely awarded to students in need of financial assistance but usually on the basis of their specialisation and how well they fit within the research ethos of the department. That’s jolly reasonable, you could say. Well it is and it isn’t. Universities are perfectly entitled to choose whoever they feel is in the research interests of their faculty and to whom they wish to award the (limited) available funding. But because this is not based on financial need – i.e. not means tested – offering funding to a candidate who may (or may not) be able to afford it without the scholarship results in shutting the door to someone who otherwise cannot. I applied for a scholarship at Oxford (the Clarendon Fund) that awards assistance to 7 students from over 1000 applicants. And statistically, those with the best grades and the best education are ones who went to the best schools and, therefore, have the money already. Attendance at a private school more than doubles the likelihood of progressing from a bachelor’s degree to a postgraduate course – 0.9% to 2.4%.

Help is available to some students in the form of the government’s Professional and Career Development Loan (PCDL). Graduates can borrow up to £10,000 to cover fees and living costs and the loan is taken via Barclays or Co-operative. These are designed for students who wish to take vocational postgraduate programmes – like social work – that qualify them to enter their chosen professions. But there are major flaws. Borrowers have to start paying back one month from the start of their course, whether they get a job or not, and it’s useless if they want to continue on to a Ph. D. For humanities students who do not have a direct, tangible career path before them, they’ll find banks are unwilling to lend money without guarantee of a return. English Literature is not satisfactorily commercially quantifiable. Also, banks are not exactly keen to lend money at the moment, least of all to young people with no assets. Unless you have a blisteringly high credit rating, you are not going to be successful.

Boo hoo. A few graduates can’t go on to another year of tax-dodging and daytime TV? Except we should all be worried about the lack of social mobility this causes. Because of the numbers of graduates in the job market (and competing for places in the academy), the value of a bachelor’s degree is steadily deflating. A nice 2:1 from a nice university? So what? Here are 5,000 other graduates with the same record. As such, the master’s degree is increasingly the benchmark of the best applicants and, alarmingly, is the entry ticket for a rising number of vocations. Internships and jobs in the media (especially national newspapers) more often than not require a master’s course in journalism. These cost around £9,000. And that’s just the tuition fee.

New research is happening and the issue is, tentatively, being raised. CentreForum released a report in October 2011, ‘Mastering postgraduate funding’, which was praised by Nick Clegg (I know, I know, something of a duplicitous history on this sort of thing) as “important in promoting social mobility” and he welcomed the findings of the report. Philip Wales’s Ph. D research at LSE, ‘Access all Areas? The Impact of Fees and Background on Student Demand for Postgraduate Higher Education in the UK’, was released in March and formed the basis of the statistics above. I was interviewed in May as part of a study at the University of York on access to Ph. D study for aspiring academics.

We should care because universities, never really the bastion of social, economic and ethnic diversity, are slipping back, despite the improvements in recent years, towards the kind of exclusivity we associate with Oxbridge colleges. Postgraduate programmes in history, English, film, media, linguistics – unsupported by the PCDL – will soon be, as they will at undergraduate level, available only to the rich, the white, the privately-educated and the male. (Women are already 3% less likely to go on to postgraduate study.) A generation of young people are being priced out of continuing their education, priced out of jobs in academia (hardly the most diverse profession, anyway) and priced out by a generation of predominantly rich, white, privately-educated men, all of whom received free university educations, and who are failing to use their government’s opportunity to make access to education fair for everyone. Until they do, postgraduate study will continue to be the realm only of the rich. The future of academia is going backwards. The valuable research and benefits to society that could be offered by thousands of postgraduate students will be lost for generations.