Increasing student loan interest rates make university inaccessible

The best things in life do not come for free and education certainly falls under that category. From primary school to university, the costs of teaching, textbooks, maintaining facilities and accessing academic materials are immense. Until a child turns 18, society accepts education should be funded by the government, to ensure all young people have a basic knowledge of the world around them. As such, the taxpayer makes the full contribution. 

I fear these economic changes are acting as a deterrent by discouraging individuals into higher education

At university, you may be aware the situation is slightly different. Before the late 1990s, only a small proportion of 18-year-olds would attend university, receiving a government funded grant to pay for their studies. Given the small numbers, higher education had long been a preserve of the rich. Tony Blair revolutionised this, calling for 50% of young people to attend university, funded by students, who would pay £1,000 a year in fees. Under the coalition, these increased to £9,250 where they remain today. 

Despite the fears of marketisation and widespread alarmism about debt, I support tuition fees. Why? Because I believe it is progressive and beneficial to society that those who receive the privilege of a university education make a financial contribution to the payment. Tuition fees allowed the government to end its cap on student numbers, with repayments of 9% occurring above a salary threshold ensuring only those who experienced a financial benefit had a say. 

However, like all forms of debt, interest applies. Currently, student loan interest is linked to the retail price index (RPI) plus an additional 3%. With inflation set to rise to nearly 10% in 2022, this would ordinarily increase student loan interest rates to above 12% for those earning over £49,130. However, the government has announced that this figure will be capped at 7.3%. This lesser increase is still immensely damning for students, especially compared to the 4.5% interest rate this year, and see the loan accumulate to a potentially unaffordable amount. 

The sum individuals would therefore need to repay over 40 years – instead of the current 30-year repayment – would be far beyond what they initially borrowed. Indeed, the repayment mechanism, which is based on earnings, can actually benefit higher earners. This is because, every month, they pay back a greater proportion of their loan. The remaining unpaid amount becomes smaller more quickly which means a higher interest rate is not as costly.

Alongside lowering the repayment threshold for new incoming graduates in 2023 from £27,295 to £25,000, I fear these economic changes, which disadvantage poorer students, are acting as a deterrent by discouraging individuals into higher education. Nobody bright enough should feel prevented from accessing the best possible education, regardless of their prior wealth. However, a triple blow of a lower repayment threshold, a longer repayment window and high interest rates could do just that. 

Introducing student loans was the radical, but correct, move

Naturally, the government want to revive the importance of technical education and skills as part of their Levelling Up programme. On this, I could not agree with them more. Technical education has been drastically underinvested in, with university presented as the sole route to success. Academia is clearly not for everyone, with the UK’s dramatic productivity crisis requiring more technical training. However, the government’s actions would suggest that, rather than engaging in the hard work technical training requires, they instead simply want to nudge people away from higher education. 

This would be a travesty for social and educational progress. While I have many criticisms of Tony Blair as a Prime Minister, and am sceptical about his recent calls for 70% of young people to enter university, his policy of introducing tuition fees was the radical, but correct, move. It was right that taxpayers who did not attend university could have some of their burden squeezed by graduates more likely to enter higher paid jobs. This, counter to what is often reported, did allow more people to attend university and ensured repayments only occurred when an evident financial benefit took place. 

Yet this interest rate is just one component where nudging the public away from university appears to be the priority. Of course, there are numerous economic factors within global inflation that a single government cannot control. One only needs to look at the preventative measures Rishi Sunak has tried to take, which are, at best, a sticking plaster. Tuition fees helped to ensure that, while universities remained a place of educational elitism, they were no longer a solely socially elitist location for the rich and privileged. These latest government decisions, like so many other aspects of policy, could put paid to that.