William Cullerne Bown
England’s universities are to be regulated. The government’s White Paper plans to transform the Higher Education Funding Council for England into the “lead regulator” for universities, and it will have a range of responsibilities that are primarily financial.
The first three tasks the technical consultation assigns the new HEFCE are to limit the government’s financial exposure, oversee the financial health of universities, and allocate extra funding to high-cost subjects. Instead of the friendly, collegial HEFCE of the past, the cold clammy hand of supervision is coming to English higher education.
But one aspect of higher education finance will not be regulated—surprising because this is the financial activity at the very heart of the new system in England, the engine that drives the entire operation forward: lending to students.
Students leave university with two kinds of debt: what they owe the Student Loan Company for tuition fees and, in future, maintenance; and what they owe other creditors, including universities. The government’s plan to avoid regulating either is troubling.
UK consumer lending is governed by the Consumer Credit Act of 1974, and supervised by the Office of Fair Trading. But student loans were exempted under the Sale of Student Loans Act 2008.
You can make a case for the exemption. The old loans were so cheap that the 1974 Act arguably exempted them anyway.
But the new regime is already a lot more expensive. Interest can be charged at up to RPI plus 3 per cent when the borrower is in employment—currently that works out at more than 8 per cent.
So the 2008 Act exemption now serves not to clarify a consistent regime, but to blow a gigantic hole in consumer protection.
This is not a flaw the government has any intention to fix. Not only does the White Paper consultation say nothing about it, the primary legislation covering student loans is being revised—but only to allow even higher interest rates to be charged. The new legislation takes us to the limit of what is permitted under the European Consumer Credit Directive—that loans must not bear interest at rates higher than those prevailing on the market, or if the same as those prevailing then there must be favourable terms and conditions.
Meanwhile, both the government and universities are busy promoting new student loans. The government has its Future Students website. The universities have their open days, information packs and all the rest. True, there is as yet no contract with the Student Loans Company drafted by the government for new students to sign. But let us not mince words: both are in the early stages of selling these loans to students.
Regrettably, much of the information being peddled to potential students is wildly misleading. For someone who goes on to become a teacher in London, for example, the government’s Future Students website estimates SLC repayments at £45 a year. By contrast, the independent BBC calculator puts the figure at £681 a year—more than 15 times as much.
As one student-money adviser explained to me recently, “The cases of students who withdraw could get really messy under the new system. They face potentially years of debt for choosing the wrong course.”
Thanks to the heedless rush to steer nervous students into the new system, we may therefore be in the early days of another great British mis-selling scandal to add to the various pensions and insurance debacles. Only this time the victims have had their legal redress taken away in advance.
Meanwhile, many students will end up with lots of other debt, too. Many have to self-fund their study, thanks to such reasons as previous study, repeats, being classed as overseas students, or taking a postgraduate course. Others will simply fall through the cracks in the maintenance system and find it costs more to live at uni than they receive in support.
Students who take out commercial loans will be covered by the Consumer Credit Act. But many will also ending up owing money to their university, often big bills for accommodation, and the Act does not cover this provision of credit. Again, no plan for regulation there.
In the US, they are talking about a bubble in higher education, like the property bubble whose popping prompted the 2008 credit crunch. Given the huge borrowings of students there and the dubious value many students get from their study, it is a plausible case. And it is not too soon to wonder if the same bubble might be starting to inflate over here. Certainly, the government has no intention of regulating student lending to prevent it.
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