Student loan early repayment penalty proposal 'abandoned'

Graduates, Liverpool Early student loan repayments are allowed, without penalties, under the current system

Plans to impose penalties on students in England who pay off university loans early are to be abandoned, ministers are expected to announce.

Business Secretary Vince Cable had intended to introduce an early repayment penalty.

It could have cost graduates thousands of pounds if they had cleared their debts within 30 years of leaving university.

The academics union UCU say the move will benefit the wealthiest in society.

The government held a consultation on the idea of a penalty, which would have applied only to students in England.

Early repayments are allowed, without penalties, under the current system.

The business secretary is believed to have supported the introduction of an early repayment penalty as the Liberal Democrats and Conservatives sought to reach agreement on raising student tuition fees as part of the coalition agreement.

The coalition government had said the system would be "progressive" - that poorer students would pay less.

Ministers were considering introducing annual charges of around 5% on payments above a certain limit to prevent wealthier students avoiding interest charges on the new standard 30-year repayment plans.

'Debt aversion'

The new system, if agreed, would have come into force this year when tuition fees will increase to up to £9,000 annually.

But following the consultation process, the government decided the evidence suggests that those most likely to make extra payments were not the wealthy but those earning around £18,000.


By Vicki Young, political correspondent

Many Liberal Democrats were reassured by promises that the tuition fee system wouldn't penalise disproportionately those on lower incomes. Part of that was the idea of penalties to try and stop the rich buying themselves out of the system by paying off loans early.

Those close to Nick Clegg say they're relaxed that this plan has now been dropped. Apparently after looking in to the details, it seemed that those on lower incomes would be more inclined to try and re-pay their loan early.

What Lib Dems are much more concerned about is getting their man in to run the Office for Fair Access - Offa. After a battle behind the scenes Professor Les Ebdon will be appointed next week and the Lib Dems are confident he'll force top universities to open their doors to more pupils from poor backgrounds. Conservative MPs are horrified by the move but they will be partly placated by the rejection of early repayment penalties.

In the end both moves were said to be palatable to the other side.

Ministers were concerned it would mean thousands of students could end up losing out and the government is expected to announce within the coming weeks that there will now be no penalty for early repayment of loans.

Last year think tank CentreForum, which describes itself as liberal, said the plans would be ineffective and costly, arguing that most of those who overpay do so because of debt aversion, not because they are wealthy.

Academics in the University and College Union (UCU) criticised the abandonment of plans to impose a penalty for the early payment of loans.

UCU general secretary, Sally Hunt, 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. Today's move exposes once again that we really are not all in this together.

"While no one would condemn any family that sought to pay off their children's debt as fast as possible, today's move simply exposes yet again what an inconsistent mess the higher education reforms are."

'Don't pay upfront'

And the National Union of Students said "the on-going lack of clarity from ministers" would create confusion among students and their families.

Liam Burns, president of the NUS said: "Early repayment penalties ultimately risk making the student loans system more regressive, but the issue of whether they should be barred or encouraged is a smoke screen that obscures the truth about paying back earlier than required.

"Paying back early is rarely a rational decision for those who have saved money for college or have a little bit extra to spare and most would be better off investing it in an ISA than handing it to the Student Loans Company."

That view was endorsed by finance expert Martin Lewis, on Twitter.

He said: "Warning to parents - don't borrow to pay tuition fees. In fact, even if you have savings, it's often better not to pay upfront."

Scottish home students do not have to pay tuition fees, while Northern Ireland's government has said fees will not rise for the next four years.

The Welsh Assembly has announced that fees will rise to up to £9,000, as in England, but the government will meet the extra cost to Welsh students studying at any UK university.


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  • rate this

    Comment number 503.

    @488 the interest is re-calculated based on your payments through the year.

  • rate this

    Comment number 502.

    485.Berkeley Hunt

    It seems to me that clever people have money and not so clever people don't. Therefore would'nt it make sense to only let people who come from families with money go to university.
    What about Lottory winners? Can't work out if you're a clever troll or incapable of sophisticated thought but either way your comment made me chuckle so thanks for cheering me up.

  • rate this

    Comment number 501.

    382.Rebecca Riot
    Students resident in Wales will pay the £3,000 per annum fees for anywhere in UK, while the English students will be paying £9,000 per annum for the same course. Foreign students will be paying £9,000 upwards per annum, while Scottish students get it absolutely free.
    Here's an idea, rather than whining about it do something.

  • Comment number 500.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 499.

    @497. laugh1ngman

    Whilst I commend the business sense of your friend, that is only possible with wealth behind you. Even if you spent nothing of your loan on food or books a year's student loan would be nowhere near enough for a deposit. Not to metion as said, many use their loans to live, it doesn't all just go on booze.

  • rate this

    Comment number 498.

    The wealthy will be able to profit from the system by borrowing money at a low rate, investing it, and then paying it back at a convenient time. High earners were supposed to pay more for the loans by paying more interest but this will now be avoidable. Unfortunately the point at which the highest rate of interest is paid is too low - £41k pa does not make you wealthy.

  • rate this

    Comment number 497.

    A friend of mine at Uni (18 years ago) used his student loan along with some savings for a deposit for a 4 bedroom house. He rented out to his fellow students. His second year he used the collateral to buy a second house and did the same, at the end of his 4 years he had 5 properties and was worth upwards of £400k! - perhaps less boozing and more investment is the way forward for students?

  • rate this

    Comment number 496.

    University? Waste of money, especially at £30k.

    Look at the youth unemployment figures, graduates can't get jobs. The belief that a university education puts you on a path to a good career has surely now been dispelled.

    If there are no job prospects after university it makes the whole university system pointless. A waste of time and money.

  • rate this

    Comment number 495.

    An utter disgrace that our politicians have considered imposing 30 year debt on those in further education, an education which would have been free to older politicians? Having generated an eye watering national debt and failing to control the banks politicians are the last people to be offering wisdom on borrowing and lending. Degree courses should be re-valued by reducing their number.

  • rate this

    Comment number 494.

    It would have been far better PR for the government to just call this a discountinuous graduate tax. Then people wouldn't have thought about this as debt and there would be no option of early repayment.

  • rate this

    Comment number 493.

    62.Berkeley Hunt
    5 Hours ago
    So lets all jump ship when the going gets a bit tough, despite the fact that this country educated you for free and provided you with free health care for at least 16 years.
    Any chance of you paying us back before you go?
    Let them go, we're better off without them anyway.

  • rate this

    Comment number 492.

    A spurios yawn back at ya

  • rate this

    Comment number 491.

    @484 . leftrightleftright
    Nonsense, everyone votes for themselves, trick is to only do it when you have at least one positive rating.

  • rate this

    Comment number 490.

    did i mention arts, music etc? no so please get that chip off your shoulder. There are plenty of people who understand what my comments mean without laying the facts in black and white....grow up!
    I don't. Unless you explain "non-degree" further neither will others. Of course if you want to use a simplistic generalisation to make a spurious argument that's up to you

  • rate this

    Comment number 489.

    @ TheWritingIsOnTheWall
    The reason the British have always been regarded as having bad teeth is actually due to the fact that most civilisations first came into contact with our sailors. These men had bad teeth due to their long journeys at sea and small incidents of malnutrition and such like. The only idiot I see posting here is the idiot calling everyone else an idiot.

  • rate this

    Comment number 488.

    Employer takes money from my wages each month and give it straight to HMRC, where it sits in their bank account making them interest until the end of the tax year when they pass it on to the SLC. Over the course of that year the SLC put interest on what I owe on a monthly basis.
    Students are getting stuffed at both ends.

  • rate this

    Comment number 487.

    This proposal is a typical example of left wing politics - Find a sneaky underhand way of screwing yet more money out of hard-working people who are trying to do the right thing, and justify it by calling it 'progressive'.

    I thought we'd seen an end to that sort of thing when Labour were kicked out, but it would seem the LibDems are just as bad...

  • rate this

    Comment number 486.

    When I was a student, the richer students still took out the cheap student loans, but then invested them in things that gave a greater return than the interest charged, thus making them even richer. At the time I thought it was unfair (not being one of the richer students), and even more so now!

  • rate this

    Comment number 485.

    It seems to me that clever people have money and not so clever people don't. Therefore would'nt it make sense to only let people who come from families with money go to university.

  • Comment number 484.

    This comment was removed because the moderators found it broke the house rules. Explain.


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