Student Loan Repayments — House of Commons, 2016-06-27
Topic: Education
Jo Johnson (Conservative, Centre-right): Yes, of course. Higher education has been devolved in Scotland and Wales since 1999 and in Northern Ireland since 2007, and we continue to look at how other nations within the United Kingdom choose to allocate public funds to the higher education system to see what lessons are to be learned from that In England, we now have a fair and sustainable system of funding our higher education system. The £21,000 threshold is higher than the one we inherited from Labour, and is fairer on lower earners. The system is also more progressive. Interest rates after graduation increase with income so that higher earners repay more. For someone earning £21,000 or less, the interest rate is set at RPI—the loan balance does not increase in real terms. For graduates who earn more than this, the interest rate increases to a maximum of RPI plus 3%. It is only fair that the graduates who have benefited most from their education should pay the most back into the system Student loans are very different from a mortgage or credit card debt. Repayments are determined by income, not the amount borrowed. Graduates are protected; if at any point their income drops, so do their repayments. The loans are income-contingent, so borrowers will repay only if they earn above the threshold, and, as I said, the loans are written off after 30 years, meaning that many graduates will not repay the full amount. This is a crucial part of the taxpayer’s investment in our country’s skills base Our approach is based on the fundamental principle that a borrower’s contribution to the cost of their education should be linked to their ability to pay. Graduates generally benefit from higher earnings than those who do not go to university, and we must ensure that we maintain a fair balance between taxpayers and graduates in the costs of higher education It is clearly important that students know what they are signing up to when they agree to take out their loans. All students are provided with clear information to help them understand what financial support they may be eligible for, as well as the interest rates and the repayment terms that will apply. They must also confirm that they understand the information before they are granted the loan. All of the information that the Student Loans Company provides to students is reviewed regularly to ensure that it is both accurate and accessible Let me turn to the threshold freeze, which the hon. Member for Walsall South has mentioned. To put higher education funding on to a more sustainable footing, we must ask graduates who benefit from university to meet more of the costs of their studies. It is clear that graduates benefit hugely from higher education. On average, graduate earnings are much higher than those of non-graduates. In 2015, graduates’ salaries averaged £31,500, compared with a non-graduate average salary of £22,000. The only alternative to asking higher-earning graduates to support higher education is to ask the taxpayer, who on average will earn much less than those graduates. We did not take the decision to freeze the repayments threshold lightly. We consulted on the changes before they were announced last November and conducted a full equalities impact assessment. The changes will mean that graduates earning more than £21,000 will repay about £6 per week more than if we had increased the threshold in line with average earnings. The threshold is higher in real terms than the one we inherited from Labour, meaning that graduates under this system keep more of their earnings before they start to repay A sustainable student finance system enabled us to abolish student number controls, lifting the cap on aspiration and enabling more people to receive the benefits of a university education. That is essential if we are to maintain our place as a country with a modern, highly skilled economy. We still send proportionately fewer people to university to study at undergraduate level than our main competitors. Between now and 2022, more than half of job vacancies will be in occupations most likely to employ graduates. If we are to continue to grow our economy, we must equip our young people with the skills and qualifications they will need to fill those roles.