Government rejects student loans fine

Students are not to be penalised for paying back their student loans early, it emerged last week.

The government has indicated that it will not follow Business Secretary Vince Cable’s plan to charge a five per cent fine on early repayments.

The plan was designed to discourage richer students from avoiding interest rate charges over the 30-year repayment period.

The academics union UCU has criticised the move as further Tory pandering to the wealthy. Sally Hunt, UCU general secretary said, “Government should be prioritising how to make it easier for poorer families to afford university rather than focusing on yet another policy designed to make life easier for the wealthiest in our society.”

But a report from CentreForum, a think-tank closely linked to the LibDems, suggests that it is poorer students who would suffer more.

“Debt aversion, not affluence, is the biggest cause of early repayments”, the report states. Instead, it suggests, the average income of those graduates who repay their debt early is only £18,400 per annum.

“There is little sign that high earning graduates are repaying their debts early to escape interest payments.” report author Gill Wyness says. Instead to clear debts early, “it appears that young, lower earning graduates are doing so”.

Wyness also points out that the fine is counterproductive as the very rich, “bypass the student loan system in its entirety. They simply pay the fees upfront.”

But NUS president Liam Byrne has criticised the government’s lack of clarity on the issue. He said the Government must “ensure those on low and middle incomes are not duped into chipping away at their outstanding debt even when it rarely makes financial sense to do so”.

The issue reveals deep divisions within the Cabinet and the Liberal Democrats themselves over the future of student loans, which will likely flare up again over the impending Lib Dem choice of Les Ebdon, vice-chancellor of Bedfordshire University, as the new director of the Office for Fair Access.

“I am pleased that we have won this minor battle,” said Conservative MP Brian Binley, “but if this is a trade-off for the furore caused by the decision of Vince Cable to appoint Les Ebdon in spite of the concerns of members of the Conservative Party, it’s a pretty feeble gesture.”