Martin Lewis: England must swap ‘loans’ for graduate contribution

Consumer finance expert Martin Lewis has long argued that dropping the terminology of “student loans” in favour of “graduate contributions” would be a crucial change to England’s student finance system. He has a succinct response for those in politics and the media who would inevitably attack such a change as an attempt to pull the wool over students’ eyes.

“If people want to criticise a change that improves communication and transparency and lets people make the right decisions, because they call it a political spin – well, they can fuck off. And you can quote me on that,” the MoneySavingExpert.com founder, who has become a key voice on student finance and influence on ministers, told Times Higher Education.

The Westminster government’s review of post-18 education is expected to report in the autumn, and dropping the terminology of “loans” is certain to be on its agenda. Mr Lewis’ passionate views on this and other aspects of student finance could prove significant.

Mr Lewis stressed that his position on the review chaired by Philip Augar reflects the remit that the government has handed to the panel, who are “not looking to radically reassess the system”, but rather to “try and improve what we have”. His views should not be taken “as me throwing my lot in with the current system”.

“If we’re going to fix things, the first thing we need to do is actually call [the student loan] what it is: a graduate contribution,” Mr Lewis argued.

As in his recent appearance on the BBC’s Question Time, he fizzed with anger at those politicians and journalists who cite figures on the near £60,000 of “debt” with which graduates can emerge. This is a “red herring” because graduates’ repayments are determined by their income, not their “debt” levels. For “all but the highest earners…this is effectively a 30-year increase in income tax above £25,000” rather than a loan, Mr Lewis said.

But when he gives public talks on student finance “people, even after they’ve heard me explain it, even after they’ve got it, [ask] ‘why is it called a loan?’ My answer is it shouldn’t be called a loan. ‘Why is it called interest?’ It shouldn’t be called interest.”

He added: “Most of the questions [from the public] I still get are, ‘I’m so worried about this loan; what happens if my child doesn’t get a high-earning job?’ You would never get asked that question if you called it a graduate contribution system.”

When graduates are presented with the amount of interest added to their loan, “people are understandably petrified and they try to pay it off”, he said.

The word “interest” should be replaced by “uprating” and the name of the Student Loans Company should be changed, he argued.

Mr Lewis’ involvement with student finance stretches back to his time as secretary general of the London School of Economics students’ union. Later, after chairing the Independent Taskforce on Student Finance Information, set up in 2011, Mr Lewis reacted furiously when ministers broke a pledge to uprate the repayment threshold in line with average earnings, a move that retrospectively hit students who had already taken out loans.   

To prevent any such “ethical breach” recurring, Mr Lewis argued that student finance terms should be “fixed – and fixed would mean [they] cannot be changed without primary legislation”.

Meanwhile, he said that “the UUK [Universities UK] position and the Russell Group position” on the Augar review, “which includes things such as cutting interest rates and bringing back student [maintenance] grants, is actually based on more fundamental change in the system”.

Mr Lewis called these moves “regressive because [they help] rich graduates over lower-earning graduates”.

The “only people who will pay less if you cut interest rates”, he continued, are the highest earners – those who repay the principal of their loan in full and thus then repay the interest.

“It’s not a question of those changes being wrong,” he added. “It’s a question of those are not the core priorities.” Instead, Mr Lewis argued, students should be given “bigger [maintenance] loans to enable them to live better at university. And then if they earn enough afterwards, they can repay it.”

Mr Lewis said of the factors behind his involvement with student finance: “I tend to latch on to anything where there is fundamental public misunderstanding in the financial and consumer finance sphere. And this to me is one of the biggest issues where constantly, societally, we talk about the issue wrong and people don’t get it.”

He added: “I don’t want university and education to be the privilege of the middle classes…I want every bright child for whom university is right for them to go. I don’t want them to be put off for the wrong reasons.

“I accept that our financing system isn’t perfect, but we should at least communicate it right so they can make the right decisions. That’s where the passion comes from.”

john.morgan@timeshighereducation.com