Tell your MP to fight disgraceful retrospective student loan hike

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Please click 'post reply' to discuss below.


  • foxtrotoscar_2
    foxtrotoscar_2 Posts: 1,717 Forumite
    What are the lawyers Martin Lewis hired seven months ago to look into this saying about the legality of this?
  • Ed-1
    Ed-1 Posts: 3,847
    First Anniversary Name Dropper First Post
    edited 13 July 2016 at 12:21PM
    What are the lawyers Martin Lewis hired seven months ago to look into this saying about the legality of this?

    It's perfectly legal... as it is perfectly legal.

    I think it's helpful to provide some background to how these student loans have evolved to place this is in context as if you're coming into this debate without this background (as current students/parents would be), there's considerable potential for misunderstandings.

    The first misconception to sweep away (as Martin has discovered from his lawyers) is that this is perfectly legal. These 'income-contingent' student loans are not commercial loans and are not regulated by the Consumer Credit Act in light of their 'better than commercial' terms. As a result the terms operate in the same way as a tax and they aren't written off in bankrupty. The student loan contract has been the same since 1998 and the terms have always been able to be changed retrospectively for all students with these loans.

    The loans are made under primary legislation (The Teaching and Higher Education Act 1998) and the detailed terms are set out in regulations made under section 22 of this Act. Part of section 22 was amended by section 76 of the Education Act 2011 which allows higher-than-inflation interest rates to be levied on post-2012 loans (up to market rates). Any retrospective changes to interest rates for pre-2012 loans (while allowed by the loan contract) would therefore require primary legislation (and in turn a vote by Parliament). This is the only condition in any of the terms that is set in statute in this Act. All other terms are set in regulations (statutory instruments) which can freely be amended from time to time by ministers. For example the interest rates on post-2012 loans are currently capped at RPI+3% by regulations. However this could be retrospectively changed without primary legislation as long as the rates set on post-2012 loans are below market rates. The current main regulations are currently the Education (Student Loans) (Repayment) Regulations 2009 (these regulations consolidated the 2000 Regulations and all amendments to the regulations made from 2000 to 2008). The regulations have been amended countless times over the years retrospectively for all students. For example, the Education (Student Loans) (Repayment) (Amendment) (No. 2) Regulations 2012 brought in new terms for post-2012 loans which in particular set a new repayment threshold to be an amount of £21,000 (regulation 11 of the amendment regulations inserted regulation 29(8) into the main regulations).

    An example of a retrospective change to the terms is regulation 8 of the 2012 No.2 amendment regulations which meant credit interest would only be paid on an overpayment for 60 days rather than indefinitely and applied to all borrowers with 1998+ loans. That is an example of a retrospective change to the terms.

    So it's perfectly legal to amend the terms retrospectively for income-contingent loans. That's not in question. Ironically what is being campaigned against here isn't in the terms and never has been! It needs to be distinguished here between a retrospective change to the terms which is already in the regulations and in force and an intention/promise by a government minister to implement or amend a particular term.

    Examples of terms already implemented which have been retrospectively changed for all students are the following (in addition to the overpayment interest change above) and have been legislated for by: regulation 6 of the Education (Student Loans) (Repayment) (Amendment) Regulations 2011 retrospectively changed the £15,000 repayment threshold that had applied from 2005 to 2012 by inserting an uprating term by RPI which provided for annual increases up to 2015 and then regulation 4 of the Education (Student Loans) (Repayment) (Amendment) Regulations 2014 legislated for annual increases beyond 2015 (by removing the 2015 time limit); and regulation 7 of the Education (Student Loans) (Repayment) (Amendment) (No. 2) Regulations 2004 retrospectively changed the £10,000 threshold to £15,000 from 2005.

    At the moment the £21,000 threshold is a nominal figure in the regulations (namely regulation 29(8) of the main 2009 regulations) and until that regulation is amended, it will stay at £21,000. This is not about retrospectively altering a term already made - it's about not implementing a promise to uprate the threshold made by the minority partner in the last coalition government (albeit agreed by the Tories). It's ironic with the regulations as they stand that if retrospective changes to the terms weren't possible, changing the threshold wouldn't be possible as the methodology for increasing it hasn't been legislated for (whereas it has for the pre-2012 threshold).

    Another example of a term that was promised to students but was never implemented was 5 year repayment holidays which Martin blogged about when they were announced. These were promised to be part of the terms for borrowers entering repayment from 2012 onwards in 2007 by John Denham, the then Secretary of State responsible for universities and were even included in the SLC guide to terms and conditions for 2008/09 (page 14) and the SLC guide to terms and conditions for 2009/10 (page 14) which students are instructed to read and agree to when they sign their loan declaration. Like the promise to uprate the £21,000 repayment threshold with earnings, this was never implemented - a retrospective change to the intended terms.

    In fact policy on the student loan threshold has changed multiple times retrospectively from the start. For example did you know that borrowers from 1998 were promised that the then £10,000 repayment threshold would be uprated with earnings? This intention (as with the £21,000 threshold now, the term in the regulations set the repayment threshold to be a nominal figure of £10,000 that was subsequently amended to £15,000 as explained above) was changed retrospectively as part of the package of reforms that came with variable top-up fees and the 2004 Higher Education Act. See paragraph 37 of this document:

    37. Raising the threshold from £10,000 to £15,000 will increase the cost of student loans to Government. From April 2010 it is intended that it should increase in line with inflation. However, since the cost of the current loans is assessed on the basis that the threshold will rise in line with earnings growth, there are offsetting savings associated with uprating by inflation instead. The combined effect of the two is expected to be a small net saving in cost to Government over the period during which variable fees will be introduced.

    It was at this time during the 2004 reforms that ensured student loans would no longer be written off if a borrower declared bankruptcy:

    "We will reflect the non-commercial nature of the student loan by preventing such loans forming part of a bankrupt’s estate." (See paragraph 78 onwards of the the above document.) Section 42 of the Higher Education Act 2004 and regulation 80(2) of the Education (Student Loans) (Repayment) Regulations 2009 legislate for this.

    See this article and this article for a further retrospective change to intentions on setting interest. When RPI spiked to 4.8% a year earlier, the government stated it had no intentions of departing from the regulation of setting interest in line with RPI (or bank base rate + 1% if this is lower). Like the current justification for freezing the £21,000 threshold because of increased costs to taxpayers than had been budgeted and planned for, interest was in fact not charged on pre-2012 loans when RPI went negative in 2009, seemingly against the spirit of the Teaching and Higher Education Act 1998 which sets an upper bound on interest at inflation to make sure loan balances don't increase in real-terms, despite it technically allowing interest not to be charged at all (making the rate 0% and as a result of it being higher than RPI, allowing the loan balance to increase in real-terms):

    "The decision [on interest rates] has been taken because loans are already well subsidised, and it would be difficult to justify to taxpayers a situation whereby students take out loans in 2009/10 and their balances are immediately reduced."

    Post-2012 loans (through the RAB charge) are also well subsidised and so freezing the threshold can easily be justified.

    Retrospective changes to terms or intentions on terms are part and parcel of these loans as they are set up like a tax. They've happened multiple times before. So why pick out this one change to complain about and make it out to be unprecedented? Very strange and uninformed whatever the merits on morality.

    Martin says "...its retrospective nature goes against all the rules of good governance. No commercial company would be allowed to do this – the regulator wouldn’t allow it." Well how does he explain all the previous retrospective changes (which he didn't make a fuss about)? You only have to look through the countless amendments to the regulations to see how many there have been and that doesn't include the changes to promises to implement terms of which this is one. The only time the terms haven't been changed retrospectively is when there have been wholesale system-wide reforms as in 2012 (this would have required changing multiple terms for existing borrowers rather than individual policy levers within the existing structure as this is an example of, so it was easier to implement 2012 policy mainly for new borrowers).

    Retrospective changes to the intentions of a previous government aren't all that bad - and in this case the minister that was part of the reforms (David Willetts) actually recommended this change in a major policy pamphlet paper!

    By the way, I think the less said about the Lords Economic Affairs Committee the better - they can't even seem to grasp the whole concept, let alone the change. And this debate is scheduled for Westminster Hall, not the House of Commons. I think MPs will be rather more engaged with the vote on Trident also scheduled for Monday!

    Some other things threshold-related:
    • Borrowers that took out a student loan between 1998 and 2011 currently have a different repayment threshold to post-2012 borrowers. The repayment threshold for pre-2012 borrowers was £10,000 from 1998 to 2005 and then it was retrospectively increased to £15,000 from 2005 to 2012 and then it was retrospectively increased by RPI inflation annually from 2012. See here for historical thresholds. As explained above, the methodology for increasing the pre-2012 threshold annually by RPI inflation is now legislated for by regulation 6 of the Education (Student Loans) (Repayment) (Amendment) Regulations 2011 which provided for annual increases up to 2015 and then regulation 4 of the Education (Student Loans) (Repayment) (Amendment) Regulations 2014 legislated for annual increases beyond 2015 (by removing the 2015 time limit).
    • The rationale for only increasing the repayment threshold to £21,000 for post-2012 loans seemed to be mainly to allow comparisons between the new more generous repayments and the existing higher repayments, rather than lowering the repayments for all borrowers since 1998, as happened in 2005 when the threshold was last increased from £10,000 to £15,000; and also for consistency of applying the new terms only to new post-2012 borrowers.
    • As a result of two repayment thresholds now applying to different borrowers, the system is made much more complex as employers now have to determine which threshold to apply for different employees (in comparison to income tax etc. where thresholds alter regularly for all employees).
    • Moreover, borrowers may have both a pre-2012 and a post-2012 loan and in this case, the current terms are that they make repayments at the lower threshold which currently stands at £17,495 (regulation 8 of the Education (Student Loans) (Repayment) (Amendment) Regulations 2013 inserted a regulation 29(9) in the main 2009 regulations). Only repayments above the higher repayment threshold are allocated to their post-2012 loan balance which accrues higher interest (regulation 6 of the Education (Student Loans) (Repayment) (Amendment) (No. 2) Regulations 2012 inserted a regulation 18A in the main 2009 regulations). As a result, for these borrowers increasing the higher threshold (currently £21,000) would mean them repaying more of their lower-interest loan than their higher-interest loan - very unfair when in addition their higher-interest loan isn't written off for 30 years after this later loan came into repayment. The net effect is that increasing the £21,000 threshold when it is already much higher than the pre-2012 threshold (and also much higher in real terms than was intended compared to earnings), these borrowers would be kept in repayment much longer than would be fair without increasing the pre-2012 threshold to £21,000.
    • David Willetts recommended in his policy pamphlet paper freezing the higher £21,000 repayment threshold as a result until the lower pre-2012 threshold catches up with it which would be close to the scheduled review in April 2021, probably allowing both thresholds to be increased together from April 2022, substantially simplifying the system for employers as repayments would be the same for all borrowers with income-contingent loans and reducing the costs of operating the system:
      "...the new repayment threshold has ended up much higher relative to actual earnings than was ever intended ... freeze the £21,000 threshold for this parliament ... continue to up-rate the £15,000 threshold, which some forecasts suggest would then reach £21,000 in perhaps six years ... up-rate the new single threshold."
    • The postgraduate student loan repayment threshold has been set at £21,000 in nominal terms as well. Increasing the undergraduate post-2012 threshold would substantially increase operational costs and complexity if this threshold was not also increased, and if it was increased it would make the postgraduate loans unsustainable. Regulation 39(7) of the Education (Postgraduate Master's Degree Loans) Regulations sets out the repayment threshold as an amount of £21,000. Incidentally, these regulations have already been retrospectively amended by the Education (Postgraduate Master's Degree Loans) (Amendment) Regulations 2016, albeit due to a typo!
  • Kered
    Kered Posts: 3,531
    First Post
    Tell your MP to fight disgraceful retrospective student loan hike

    No, I don't think I will, student get enough 'perks' already.
    I had to work from age 16 and there were no cheap loans for me so why should I subsidise students to sit on their loathsome spotty backsides?
    Let them go out and earn their keep.
  • foxtrotoscar_2
    foxtrotoscar_2 Posts: 1,717 Forumite
    Kered wrote: »
    Tell your MP to fight disgraceful retrospective student loan hike

    No, I don't think I will, student get enough 'perks' already.
    I had to work from age 16 and there were no cheap loans for me so why should I subsidise students to sit on their loathsome spotty backsides?
    Let them go out and earn their keep.
    Is the correct answer! Mr Shouty Man has lost it on this!
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