Some HUGE potential changes to Student Finance have just been announced
The report's been a long time coming, and it's recommending some pretty radical changes.
A government-commissioned review into post-18 educational funding in England has finally been published, and it's suggesting some big changes – including a drop in tuition fees and an extension to the Student Loan repayment period.
The announcement of the report way back in February 2018 was seen by many as an attempt by Theresa May to win over young voters after their huge turnout in the 2017 election in favour of Labour.
The Augar Review, so-called as it was headed by Philip Augar, was initially set to be published at the beginning of this year. But thanks to countless delays, it's taken until now – just days before Theresa May steps down as prime minister – for the findings to be made public.
At this stage the proposals are only intended for new students in 2021/22, but as we'll explain later, some may end up affecting you too – so let's take a look at the big ideas.
What has the Augar Review suggested?
The review has suggested a whole host of changes to university funding, some more significant than others. Here are the main proposals to be aware of, as well as our take on what it actually means:
Tuition fees to be cut to £7,500
As has been widely anticipated for several months now, the Augar Review has recommended that annual tuition fees be cut from £9,250 to £7,500 as of the 2021/22 academic year, and increase with inflation from 2023/24.
This would represent a bit of a U-turn from the Conservative Party, given that the Tories were the driving force behind tuition fees being tripled to £9,000 in 2012, and increasing them once more to £9,250 in 2016.
What does a reduction in tuition fees actually mean?
We've always campaigned against any increase in tuition fees, so we're certainly not against a reduction. But that said, this move would still be underwhelming to say the least.
It's easy to forget that tuition fees were just over £3,000 a year as recently as 2011, and completely free up until a little over 20 years ago. A reduction of £1,750 a year amounts to a saving of just £5,250 over the course of a three-year degree – a figure which sounds significant, but in the context of the current Student Loan repayment system, is pretty meaningless.
First and foremost, remember that all of your tuition fees are covered by a Tuition Fee Loan from the government. This means that you won't have to pay a penny towards tuition until you've graduated.
As it stands, your remaining Student Loan balance will be wiped 30 years after graduation, no matter how much or how little you've paid off. Most students will graduate with around £50,000 of debt (if not more) and interest will continue to be added until the 30 year point – often exceeding the monthly repayments.
Throw in the fact that you only ever repay 9% of your earnings over a threshold (currently £25,725), and the chances of you clearing your Student Loan debt are minimal (according to the Institute for Fiscal Studies, 83% of students will never repay their debt in full).
In a moment we'll discuss the other changes that the Augar Review has proposed (including a longer repayment period and a lower threshold), some of which will make a reduction in fees slightly more significant.
However, the underlying point remains: thanks to the interest being added to Student Loans, a reduction in tuition fees will have the biggest benefit for the highest-earning graduates. As they're able to repay their loans quicker, the interest will have less time to accrue, and the slightly lower fees will have a more significant impact on the total figure they repay.
Our verdict: Any cut to tuition fees is better than none – but in this case, there's not much in it. At best, we can hope it will encourage a few more debt-averse students from less privileged backgrounds to go to uni – however, such a small reduction is unlikely to change much.
Perhaps more concerning is that although the Augar Review has suggested that the government make up the loss in funding for unis with additional top-ups, it proposes that more money will go to courses that offer "good value".
In the real word, this means that courses with an obvious career path (like Engineering and Accountancy) will receive greater funds, while those that don't (like Sociology and English Literature) receive less.
Should this go ahead, it's not difficult to imagine a scenario whereby universities put more effort and resources into the courses that will get them the most money, at the expensive of their 'less lucrative' offerings.
Student Loan repayment period to be extended
This one is a bit of a turn up for the books. When politicians and other senior figures in higher education have discussed changes to the Student Finance system in the past, the repayment period has never really been a talking point.
Nonetheless, the Augar Review has suggested extending it to 40 years, so let's take a look at what this could mean.
What does a longer Student Loan repayment period actually mean?
The 30 year repayment period has always been key to our belief that the current system for Student Loan repayments is actually pretty generous.
As we explained earlier, 83% of graduates will never pay off their Student Loans in full before they're wiped after 30 years – so for most, this means no more student debt beyond their early 50s. But should the repayment period extend to 40 years, you'll be close to retirement (if not already there) by the time your debt is wiped.
Admittedly you only ever repay 9% of your earnings above a threshold (which the report suggests should be reduced), but our quick maths estimates that you'd still end up repaying over £10,000 more than under the current system.
Our verdict: In an ideal world university would be free. But as it's not, we need to come to terms with repaying Student Loans. Nonetheless, as manageable as they are, 10 years worth of extra repayments isn't nothing – and neither is the likely £10,000+ extra you'll end up repaying.
'Student Loans' to be renamed as a 'student contribution system'
Credit: HBO
We've long argued that Student Loans are misnamed, and that the way they operate is more like a tax than a loan repayment.
Fortunately it seems like this message is getting through, as the Augar Review has suggested that 'Student Loans' should be renamed as a 'student contribution system' to better reflect the reality of the situation.
What would renaming Student Loans actually mean?
In terms of the way it all works, this change would mean basically nothing – but the psychological impact is potentially huge.
As a graduate, Student Loan repayments are deducted from your salary by the taxman before you receive your pay packet, and you only start repayments once you're earning above a certain threshold.
So in all but name, Student Loan repayments act as a tax – a salary deduction paid directly to the taxman, with the amount calculated as a percentage of your earnings over a threshold.
Recent research has shown that students from working class backgrounds are more likely put off by the prospect of a 'debt' than those from wealthier backgrounds. And so, by removing the (frankly misleading) language of 'loans' from the system, it should hopefully pick away at a huge psychological barrier to entry for students from less privileged backgrounds.
Our verdict: At last! Renaming 'Student Loans' may not make a difference to the amount you repay, but it could end up being the most progressive change to come out of the Augar Review.
Student Loan repayment threshold to be reduced
This could be a biggie. The Augar Review has suggested that the Student Loan repayment threshold be reduced from it's current level of £25,725 – although the exact figure at this point is unclear.
What would a reduced Student Loan repayment threshold actually mean?
The Student Loan repayment threshold refers to the amount that you have to be earning before you start paying back your student debt. The history of the threshold is controversial, as when tuition fees were tripled in 2012, the government promised that the-then figure of £21,000 a year would rise annually in line with inflation.
They then did a sublime u-turn and froze the threshold, meaning that as £21,000 became worth less and less (bloody inflation), the threshold was in effect decreasing. In April 2018, the threshold fortunately increased to £25,000, and in April of this year it rose once again to £25,725.
The Augar Report says that if the threshold were reduced today, it would be to £23,000 – a change which would result in an extra £180 a year (£15 a month) in repayments compared to the current system.
But the review also states that this threshold should rise with inflation each year, and therefore by the time it's implemented it's likely to be a couple of thousand pounds higher.
Our verdict: We long campaigned for the Student Loan repayment threshold to be unfrozen and increased, so this one stings a little. The Augar Report does at least suggest increasing the figure each year in line with inflation, although we've seen in the past that government can and will ignore this if they wish.
Maintenance Grants to be reinstated
When Maintenance Grants were scrapped in 2016, we (along with what felt like everyone else in the world) argued that it was a psychological blow for prospective students.
Fortunately the Augar Review has suggested that they be brought back for students from the poorest families, so let's dig down into the detail.
What would reinstating Maintenance Grants actually mean?
Although the government did indeed scrap Maintenance Grants (which didn't need to be repaid), they didn't eliminate the funding altogether. Instead, they replaced the value of the grants with an extra chunk of Maintenance Loan (which did need to be repaid), thereby ensuring that students were still receiving the same financial package while at uni.
However, as with many aspects of the Student Finance system, it was the psychological impact of this change that was most damaging. Debt-averse students from the poorest backgrounds (the very same students who would have received the grants) were now faced with the prospect of an even greater sum to repay.
Under the proposals put forward by the Augar Review, students from families with a household income of less than £43,000 a year will receive a Maintenance Grant, with the amount awarded increasing the lower their household income is.
The report suggests that the maximum available amount should be at least £3,000 a year, and it's likely that this would be available to those whose families earn less than £25,000 a year.
Our verdict: While it may not make a huge difference to the amount you actually repay, the psychological benefit of reintroducing Maintenance Grants is massive. The move to cut grants was unpopular at the time, so it's a relief to find out that it may be reversed in the near future!
That said, when the government replaced grants with loans, they actually slightly increased the overall amount of money a student could receive.
The main thing we wanted from this report was increased Maintenance Loans/spending money for students, so it's slightly concerning that re-introducing grants may be used as a way for the government to cover up the real issue – and possibly decrease the overall financial package once again.
In-uni Student Loan interest rates to be cut
Student Loan interest rates seem to dominate the headlines when it comes to university fees and funding.
Perhaps as a result of political pressure, the Augar Report has suggested cutting the interest rate while students are studying from RPI (Retail Price Index, a measure of inflation) plus 3% to just RPI.
What would cutting the interest rates on Student Loans actually mean?
Student Loan interest rates are one of the big red herrings in the university funding discussion. Whenever the figure rises, people are quick to assume that this means their Student Loan repayments will go up too. This isn't the case.
Interest rates on Student Loans only affect the overall total of the debt – they do not affect the amount you repay each month. In other words, a higher interest rate doesn't affect how much you're repaying right now – it just means you'll be repaying your Student Loan for slightly longer.
Interest rates are currently set at RPI plus 3% while you're studying, and RPI plus up to 3% once you've graduated (more details on the specifics of how this works here). The RPI figure changes each year but is currently 3.3%, which plus 3% is 6.3%.
The Augar Report has suggested that the interest rate be reduced to just RPI while students are studying, which represents a pretty significant drop on the face of it. But once again, the reality of the situation is that it makes little or no difference to most students.
The amount that most currently end up repaying doesn't even reach the original value of the debt excluding interest, so reducing the interest rate is just decreasing a figure that you're unlikely to hit anyway.
Our verdict: Cutting the interest rates on Student Loans would be an easy PR win for the government, but in isolation it would have very little impact whatsoever. It'll only start to benefit students and graduates if the repayment period is extended to 40 years, but if that's to happen, you'll be repaying more overall anyway.
Total repayments to be capped at 1.2 times the original loan
Credit: HBO
Another left-field suggestion, but an interesting one nonetheless. In an effort to iron out the kinks in the Student Loan repayment system, the Augar Review has suggested that no graduate should ever repay more than 1.2 times the original value of their loan in real terms (in other words, what the loan would be worth in 'today's money').
What would capping Student Loan repayments actually mean?
Let's say you borrowed £40,000 to cover your tuition fees and Maintenance Loan. Factoring in interest and the repayment period, under the current system you could end up repaying far, far more than this.
But this new proposal means that you'd never repay more than £48,000 (1.2 times £40,000) in real terms. The 'real terms' part is important – if you graduate in 2020, inflation means £48,000 is worth a lot less than it will be in 20 or 30 years.
So for the purpose of your repayments, the maximum repayment figure of £48,000 will be scaled up to whatever its value is at that point in time. In other words, if in 2040 it's now worth £60,000, and you've repaid £60,000, you'll have completed your Student Loan repayments.
We won't go into the boring specifics, but basically this eliminates the interest-based quirk that currently means the highest-earning graduates end up repaying less in total than lower-earning graduates (pretty regressive, as many would argue the highest earners have benefited the most from uni and should repay at least as much as others).
Our verdict: Nobody really expected this suggestion, but we're big fans of it! And best of all, the Augar Review has suggested that it come into effect for students and graduates on Plan 2 loans as well (basically anyone from England and Wales who started uni in September 2012 or later).
Will the proposed changes actually come into effect?
For a couple of reasons, it's worth taking all of these proposals with a significant pinch of salt.
First and foremost, this review was commissioned by Theresa May – who as you'll no doubt know by now is set to step down as prime minister next week. This means that the responsibility for implementing these changes comes down to whoever the PM and chancellor are come Autumn 2019, when the next spending review is due.
Experts in the field have suggested that the government may pick and choose which proposals to go for, perhaps opting for the ones which will appeal to voters, or those which will cost the government less.
However, many believe that this wouldn't be a wise move, as so many of the suggestions are dependent on one another to be effective (for example, a reduction in the in-uni interest rates is pointless if other repayment conditions don't change too).
Secondly, almost all of the ideas (with the exception of the 1.2 times cap on Student Loan repayments) have been proposed for new students started in the 2021/22 academic year.
In theory, this means that current students and graduates shouldn't be affected by the changes – but we're not holding our breath on this one. As we've said time and time again, the government can, will and have made retrospective changes to the terms of your Student Loan agreement, so it's not beyond the realms of possibility that some of these ideas will affect you.
And if you'd like to read all 216 pages of the Augar Review yourself, you can find it yourself here.
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