UK student loans are administered by a wholly government-owned private company that is technically insolvent and cannot guarantee or compel repayment.
Yet Jeremy Corbyn is now back-pedalling over Labour’s promise to abolish university tuition fees, when it could abolish student loans, past, present and future, with a phone call and a pen.
The Labour Surge of 2017 was heavily attributed to Jeremy Corbyn’s apparent commitment to abolish highly unpopular university tuition fees for English and Welsh students. Young people, it was proclaimed, are the future, and Labour had successfully engaged them in large numbers for the first time in a generation.
During the election Corbyn said “I don’t see why those that had the historical misfortune to be at university during the £9,000 period should be burdened excessively compared to those that went before or those that come after. I will deal with it,”.
So Corbyn’s recent back-pedalling and fudging over what appears to be an open goal against the Conservatives seems suicidal for a man currently 4/1 on to be the next British Prime Minister. Particularly when the source of confusion seems to be a fundamental misunderstanding of how the Student Loans Company – and in turn UK finances – actually operate. This is a debate Labour simply do not need to have. It is damaging the perception of Corbyn as honest and trustworthy to a generation already shafted by Nick Clegg.
Student loans in the UK are administered via the Student Loans Company Ltd (SLC). This is a wholly government-owned private company, whose annual accounts are published at Companies House alongside all the others. Usually, loans are considered an asset on the books of any lending institution. In simple terms, “Assets” are the value of the loan book, and “Liabilities” are money that firm owes to others. According to newspaper headlines, the SLC should have “£100bn” in loan assets. However when you peruse the SLC accounts you’ll immediately notice two things:
It turns out that student loans are such an artificial concept that they cannot be recognised, under international accounting standards, as assets of the firm that issues them. They are fake loans, a fiction, an accounting sleight of hand.
The peculiar nature of student loans means the SLC simply cannot guarantee or compel repayment in the way a private loan company can.
Regular private debt is neither dependent upon income before repayments are triggered, nor is it written off after 30 years. Any normal lending operation would be closed down if its accounts looked anything like this. But the SLC gets away with it because it is in permanent receipt of government ‘grant in aid’.
In fact, HM Treasury is still funding universities as it always has done, because the SLC isn’t quite the nice little earner it was intended to be on creation. HM Treasury may route the ‘grant in aid’ money via the Department of Education and the SLC, but it is still at heart good old fashioned government spending. That “£100bn” of outstanding fake loans? The vast majority will never be paid back in full. Many will not even cover the initial nominal amount.
This is because of the way student loans are repaid. In essence, student loan repayments are debited at income source, monthly, at a rate of 9% on earnings above £21,000 per annum. If this sounds rather like Income Tax, then that’s because it is. Student loan repayments are indistinguishable from Income Tax for practical purposes. But unlike Income Tax, student loans are written off after 30 years. So, a student who borrows heavily and does not meet their “full” earning potential is unlikely to pay enough back before the debt is written off.
A Labour government could abolish student loans, past, present and future, with a phone call and a pen.
It’s largely just a matter of putting the already insolvent SLC out of its misery via the administration process, and absorbing the 2,825 employees back into the Department of Education. Student loans are just a convoluted way of keeping a list of people the government would like to tax a bit more at some point, possibly. A graduate tax in all but name. The recent Election proved abolishing student fees and debt was hugely popular with the very people Labour need to win power – remember that a University degree is a requirement for most professional-level public sector jobs. The policy would be a moderate tax cut to the educated middle-class, whose spending will be needed to bolster the economy post-Brexit. Politically, it can be painted as a reward for endeavor and virtue, rather than the usual Tory-tax cuts for winners in the property casino.
Whatever Corbyn thought he was promising, abolishing all student debt is the correct thing to do. It makes economic, political and moral sense, and will help make him the next British Prime Minister.
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