Will graduates ever be compensated for student debt?

Next time someone tries to tell you the public doesn’t care about student finance, politely inform them that the Treasury Committee received a staggering 52,000 submissions to its survey on the subject in a single month, one of the highest response rates every recorded. The majority (49,357) came from people who have taken out student loans. And their message is overwhelming.

For more than 80 per cent of this (admittedly self-selecting) sample, the impact of repaying these loans is worse than they ever expected. Unsurprisingly, the interest and repayment terms don’t feel reasonable. (Reminder: the interest rate makes it virtually impossible for most people to ever pay it off; the repayment thresholds have been frozen by the Chancellor; and repayment acts like an additional 9 per cent tax that hikes the marginal rate of a graduate earning the London living wage up to 37 per cent.) Two thirds say this is having a material impact on their financial planning for the future. But the figure that really stood out for me was 28,275: that’s the number who said they did not understand the terms and conditions of their student loans before they took them out.

The committee also published a set of promotional materials provided by the Department for Education for “student finance tours” around schools up until 2020. They informed prospective students that “the thresholds will be adjusted annually in line with average earnings” – which has not proved true. The interest rate that has become so contentious (RPI plus up to 3 per cent) is mentioned but not properly explained. In one PowerPoint slide, a cheerful yellow box with a light-bulb illustration reassures anxious pupils that the interest rate does not affect monthly repayments.

How much will those repayments be? Another slide offers some helpful comparisons. For someone earning £27,725, just slightly above the threshold, repayments will be £15 a month – a tad more than a mobile phone contract (£14), but less than toiletries (£17). It skirts over the fact that repayments then rise steeply. For a salary of £66,000 – the minimum required for repayments on an average loan to cancel out the monthly interest – that figure becomes £299. That’s an awful lot of toiletries.

These materials weren’t being shown to economics graduates. They were for teenagers, and it’s very clear what message they were meant to absorb: this isn’t the kind of debt you need to worry about. Now the first cohort of those teenagers are in their early thirties, wondering why they are losing hundreds of pounds each month on a loan balance that never comes down.

“There’s a real duty of care here,” I was told by Meg Hillier, chair of the Treasury Committee, in an interview for the New Statesman podcast. She added it was “really obvious” that people “didn’t understand what they were signing up for when they were 18”.

This cannot technically be deemed a mis-selling scandal, Hillier explained, because it was the government offering these loans rather than a private company. “Unbelievably, in law… it’s not regulated as a financial product.” That’s the case even if the government changes the terms midway through, as Rachel Reeves has done by freezing the thresholds.

There is little chance, then, of a class-action lawsuit and compensation of the PPI variety. But the fact remains: a generation of young people were told university was the key to financial prosperity, but misled on what that key would cost them. The government’s only intervention so far has been to make things worse. One survey respondent lamented that “freezing the thresholds feels particularly cruel and robs me of ambition and hope”, while another called the repayment rate a “tax on ambition”. Around six million people have outstanding student debt. The ministers on whose desk the Treasury Committee’s report will land, expected this summer, should take note. This issue – like the loan balances of millions of aspirational young people – is going nowhere.

[Further reading: Immigration is down, so why does no one care?]