Debate Outlook Roll up, Roll up: Why we all need to understand how student loans work By Angus Hanton, co-founder, Intergenerational Foundation Take out a student loan, get a degree, and before long you too could earn a higher lifetime salary. Just sign on the dotted line. Don’t worry about how much it costs, it’s immaterial, as you may never have to pay anything back. That’s right, it’s low-interest. Roll-up, roll-up… And, much like Pinocchio’s “Honest John”, the student loan debt machine herds a never-ending stream of students – around 400,000 each year – to merrily sign away a chunk of income for the next 33 years of their lives. But achieving a lifetime graduate premium is no longer the case for many students as the Intergenerational Foundation’s 2016 Graduate Premium paper revealed. That’s because too many factors are at work to guarantee a lifetime graduate premium for all. Class, background, school attended, degree studied, gender, age, ethnicity, the state of the employment market at the time, all play a part. That’s not to say a degree is not worth it, but it does challenge the government’s use of lifetime graduate premium statistics, based on past projections, and before the rise to £9,000/year fees, to justify changing the terms and conditions, which they have done three times since 2010. In 2010 students were told that fees would increase for only a few institutions to £9,000/year. No such luck. Now, nearly all institutions charge £9,000/year, with some putting their fees up to £9,250 from September 2017, and by inflation going forward each and every year after that. The government promised that the repayment earnings threshold would rise in line with inflation in order to protect the lowest graduate earners from having to start repaying their loans. No such luck. The government has now frozen the repayment threshold at £21,000 until 2021. This means that as inflation rises more lower earners will be dragged into repayment sooner. The government has also changed the terms on living costs. Now, instead of students from poorer backgrounds receiving grants to cover their living costs while at university, they have to take out maintenance loans adding up to £10,000 a year on top of their student fee debt. For students from slightly wealthier backgrounds the government now means-tests maintenance loans, meaning that their parents will have to cover the shortfall in living costs. For those families on middle incomes with a number of children going through the higher education system at the same time, this will come as a big shock, especially as no notice period was given by government to allow them to save the cash up in advance. Higher education pundits say that we just need to forget about the amount of debt borrowed, and how the interest racks up upfront, because loan repayments are income-contingent. It means that the amount young people will pay back is based on what they earn over a certain amount, with most graduates ending their 33-year loan term seeing their outstanding loan debt written off by the government. Current and future students will really be paying an extra 9% "graduate tax": graduates start repaying when their earnings exceed £21,000 and have 9% of their salary over that amount deducted straight from their pay packets. But as we have seen already the government has been all-too-ready to change the terms and conditions, the fee levels and the repayment threshold. That’s why it is so important that parents and students understand how interest is added to student tuition fee loans (at RPI+3%, compounded monthly while at university), then added to their student debt once leaving university (at RPI until they start work), and when earning over £21,000 (RPI+up to 3%). A small change to the level of inflation, or a small rise in interest rates, or fees, or the repayment threshold, could see the amount of debt skyrocket. If, as the Chancellor announced in the 2016 Autumn Statement, the government is seeking to sell off student debts wrapped up in the Student Loan Book, then it is more important than ever that parents and students know what elements of student finance need to be fought for. It is also important to realize that student loans are not the only tax that young people have to pay. They also have to pay national insurance of around 12% after earning £8,060, and basic rate income tax of 20%. To say that another 9% of their income on earnings over £21,000 is equivalent to "a posh coffee a day", as the 2015 Minister for Universities declared, reveals just how dismissive policy-makers are of the financial burden student loan repayments will inflict on students for the next 33 years of their lives. But parents are starting to get wise to this smooth-talking snake-oil sales pitch coming from both central government and the higher education industry under the guise of "much needed reform" and "teaching excellence". As parents increasingly have to chip in and help their kids with the exorbitant cost of university living, they have started to look at the small print of the post-2012 high education fees regime and they do not like what they see. That’s not to say that young people should not bear some of the cost of getting a higher education - but the playing field should be level, transparent and fair. That’s why "Parents Against Student Debt" was formed: in order to question the current deal, challenge high rents charged by university halls, challenge the government if and when they decide to change the terms and conditions, and protect the students of today, from whatever background, from becoming mere cash cows. Thanks to the marketisation of higher education, where once university used to be a gift from the old to the young, now higher education has become just another part of our service economy. The charity sector should be Open To All. Children England and an increasing number of our colleagues in the sector are confirming that, when recruiting, we won't require a degree for any role where it isn't essential. We're calling on all charities to do the same.