Wildfire Myths, Student Finance and Social Media - Again!

Social media has seen a complaint about the English student finance system go viral. Simon Crowther, a recent civil engineering graduate from Nottingham, was shocked when, on receiving statements from the Student Loan Company, it transpired his student finance arrangement was not what he thought it was.

He accused the Government of having "misled" him and other students when it came to the student loans system. He took-out a student loan in 2012 under the scheme introduced under the Coalition Government, which overhauled completely the way Universities and student maintenance was funded by government.

What changed in 2012

The key changes to the system included the raising of tuition fees to a maximum of £9kpa, a significant up-rating of the "repayment threshold" above which graduates have to begin to repay their loans, a substantial expansion of the maximum maintenance payment for which a student was eligible (especially those from disadvantaged backgrounds), the imposition of a 30-year rule wereby unpaid balances of a student loan are written-off after that period, and a move away from charging RPI inflation on the balance of a student loan, to something resembling more closely, but still well below, a commercial borrowing rate.

All of this information was extensively made available and was able to be read about on both the Student Loan Company's website, the Department for Business Skills and Innovation website, was discussed at length in government information campaigns about the new system, was disclosed in all the paperwork made available to students applying for a student loan, and was spoken about almost non-stop by people like Martin Lewis on his MoneySavingExpert website and in television interviews. At the time many of us were frustrated that the mainstream media, including the BBC, and the opposition political parties, were focused obsessively only on the £9k fees, ignoring the other changes to the system that, in fact, cut the contributions made by low-earning graduates, both at the beginning of their careers and across their earning lifetime.

What's the problem?

The news coverage of Crowther's letter has perpetuated or accepted several myths and pieces of misinformation about the new scheme. The letter makes the false claim that the government has "sold our loans to a private company which has caused the interest rate to skyrocket". This is wrong on two levels.

"THEY SOLD OUR LOANS!" No. No they didn't.

Firstly, it is not true that the government has sold-off the right to receive loan repayments to a private company, at least not with respect to people like Simon. His loan is disbursed and administered by the Student Loans Company, which is wholly owned by government actors in the UK (85% by the Department for Business, Skills and Innovation, responsible for support of tertiary education in England and 5% each by the devolved administrations). The government has owned and run student finance through the SLC for almost three decades. This is nothing new. Nothing has changed here.

It is true that some legacy loans were sold-off by the Student Loans Company in 2013. These related to what were "mortgage-style" borrowing arrangements that existed to meet tertiary education/living costs between the formation of the SLC in 1989-90 and 1998. One of the reasons for the decision to sell-off these loans is that they individually had very low outstanding balances, and those that didn't were becoming a lot more expensive to collect. This was a consequence of difficulties tracking-down graduates that had long since disappeared off the radar of the SLC. The effect of this is to divert time and other resources available to the SLC from focusing on ensuring that more recent loans are paid back promptly. Even though the "book value" of these loans was about £890 million, the actual amount the government would stand to realise from enforcing these debts themselves would likely have been much lower. This explains why a £160 million lump sum, paid by the successful bidder, is not the terrible or outrageous sham its critics say it is.

It is also true that, since the Conservatives acquired a majority in May 2015, there has been renewed consideration given to whether the loans incurred between 1998 and 2012 should be sold-off. Vince Cable, as Secretary of State for Business Innovation and Skills, had been strongly opposed to this move, and blocked some efforts to take this idea further than exploratory stages. However, it should be noted that in the last budget this idea was put back on the back-burner and a recent OBR report suggested the plan was not advancing in the near future.

"THIS CAUSED INTEREST RATES TO SKYROCKET!" No. No it didn't.

The second problem with Crowther's open letter is that he has seriously misunderstood how interest works in student loans. It is not the case, even among the loans that the Student Loans Company has sold-off, that the new beneficiaries have the right to change the terms and conditions, like the rate of interest the lender can charge on the remaining balance of the principal debt. That would be a breach of contract and those taking out loans between 1990 and 1998 could contest it.

But it's not even true that interest rates have rocketed on student loans under the new system, which remember hasn't been privatised. Part of the new scheme did, it is true, change the system that previously charged RPI inflation as the rate of interest on the accrued student loan balance. It changed it to RPI + 3% when you are studying, then RPI inflation on graduation if you earn less than the repayment threshold (£21kpa) and then a variable rate of interest between RPI and RPI + 3% until a student earns over £41kpa. These terms were made completely clear at the time and were readily available on the Student Loans Company website.

At the moment RPI inflation is about 0.9%, meaning the maximum rate of interest on the loan is 3.9%. This is actually lower than the rate charged on loans in the two years immediate preceding the introduction of the new system, because RPI inflation was itself higher than 3.9% in those years! It is also lower than most mortgage rates at the moment and much lower than most unsecured credit arrangements. It is straight-up fiction on his part when he claims that, when he took out the loan "the loan was at a very low interest, and at the time was around 0.5%."

This is, admittedly, one of the most complicated aspects of the system. Crowther has clearly misunderstood how this works. The impression his letter gives is that the 3% above inflation rate is charged on all graduates, and that therefore, as he claims, he would need to be earning over £41kpa to begin to repay the principal debt over and above the interest.

How it actually works

This is wrong for two reasons. Firstly, someone earning, say, £27kpa, the national median household wage, will only be paying interest of 1.8% on the principal. The purpose of having a sliding scale of interest levied on graduates is actually to prevent higher-earning graduates from getting an unfair advantage in saved interest with respect to saving money by paying-off their debt earlier than those earning less than them. It isn't a perfect way of doing it, but, assuming we are talking about those who do in fact pay off the whole principal of their student loan, this isn't unfair and only hits graduates earning almost double the middle income of someone living in the UK. Instead, these people would, just like anyone else, have to make a conscious overpayment if they wanted to extinguish the debt early, though why they'd want to given the generous terms of repayment I cannot for the life of me understand.

The second reason it is wrong is because it completely ignores the fact that interest, for many graduates, will function as a hypothetical accounting exercise and for most will only slightly increase the total amount for which they are liable. The fact that student loans are written-off after 30 years means that, regardless of how much you've paid, you don't have to pay any more. If you are paying 9% of all your earnings over the threshold for 30 years, and the total of that contribution is less than the original loan amount you took out, the government is effectively writing off both the amount of the principal you didn't pay, and every single penny of the interest you accrued.

Even if you would have just and no-more paid off the principal but for interest charged, then the amount of interest you are effectively charged is still only the difference between your total repayments and the original sum you took out; not the whole amount of interest nominally charged to your account.

The only people actually affected by high rates of interest are those who are paying off their student loan with several years to spare.

The frustrating thing

If Crowther is right about one thing, it's about just how much of a gap there is between how the student finance system actually works, and how many people think it works. The problem is that how he now thinks it works, having had this "veil of secrecy lifted", is in fact... not how it works. What we are seeing is a culmination of media dumbing down of the system, to such an extent that it seems clear that bright, generally mathematically literate, students, secondary school teachers and politicians alike do not understand the mechanics of it all, despite the information being readily available and easy to communicate to those taking out those loans.

It is also clear that headline grabbing about "selling loans to the private sector" and "commercial rate interest" and the like are being used as dumbed-down signals to suggest that education is being marketised in some sort of free market frenzy. This makes the debate turn into one of ideological criticism of what the political extremes think the system is motivated by, rather than an evidence-based approach that properly considers how the scheme works compared to others.

It also distracts from the ability genuinely to criticise changes made by the government that actually are unfair and retrospective. When the new scheme was introduced, it was understood that the £21kpa repayment threshold was supposed to rise in-line with inflation. This would mean that, as the cost of living went up, graduates were not left with less real disposable income in the years to come. Alas, in George Osborne's Autumn Statement, he left in the fine-print the fact that this was no longer going to be the case.

The effect of this was a bit like cutting the personal allowance for taxpayers: more of a graduate's income would be subject to the 9% deduction from their pay-packet than if it had held with inflation. In terms of the impact on real disposable income, this most affects those whose debt repayments are least contingent on the size of their principal debt. Put more simply, it affects those earning between about £21k and £40k the most. Those earning much more than that don't suffer as much from a lower threshold as they end-up repaying their debt in full, and do it earlier than they otherwise would. The effect of that is... that they don't accrue as much interest on the debt as they otherwise would have so pay less for their University education!

Martin Lewis has been very vocal about this change, and it is one people should be angry about. That really is a case of going back on an implied undertaking or changing the rules of the game after the fact.

Wider context

This debate also takes place, from the perspective of observers like me in Scotland, against the backdrop of a vastly oversimplified public debate about the full state-funding of tuition fees in Scotland. This is a policy that benefits those who frankly don't need the state to underwrite their education for them. The evidence shows that this policy has done nothing to widen access to Scottish Universities when it comes to admitting those from deprived backgrounds. While the gap is closing in fee-ridden England, it is stubborn and static in Scotland.

We are also seeing Scottish Universities increasingly dependent on international and rUK students being admitted in order to meet their costs of operating and providing a diverse range of courses and subjects. This need to admit those bringing external sources of funding is holding back admissions levels for Scottish students, which disproportionately hits those from disadvantaged and minority backgrounds.

The dangers of misinformation in public debate allow governments to advocate things that are symbolically powerful, but ultimately terrible policies. And in the age of social media, the myth can travel half-way across the world before the truth has so much as got its boots on. We need to demand better.

Summer's Over - Back to Uni

Well the summer's almost come to an end. University properly gets going again on Monday. We were relatively curtailed in our activities over the summer as my mum's been in hospital for quite a while, but it was good to spend some time back with the family. After some anxious waiting, my sister got her Highers results in and got a brilliant 5As. She should stand a good chance of getting to do her preferred course (Law) at University when she applies later this year. I'm really pleased for her as she worked hard and is really focused on what she wants to do. I spent two weeks working at my old school as a caller in their alumni fundraising campaign which was challenging but good fun.

I went along to the Pie and Bovril 5s in June, which, is a football tournament held by Scotland's biggest online football forum. It's always good fun and an excuse to have a few beers and a chin wag with the people behind the avatars. Whether it's a St Mirren fan in Cambridgeshire exile or a Linlithgow Rose maths geek, they're all a great laugh. This year the post-tournament venue was The Arc in Glasgow City centre which is a great venue and the weather was good enough for us to sit outside. One of the highlights of the evening was watching the initiation ritual to which the Welsh National Fencing Team were subjected, namely trying to eat a whole raw leek as quickly as possible without vomiting!

Dad and I spent the summer tentatively looking around for my first car. I've said before I really want a classic rather than just a new hatchback, and sharing my dad's enthusiasm for older cars, I was prepared to put in the time to restore an older car if required. The problem with it being based in Aberdeen is that there aren't that many cars within close distance to go and take a look at. I was especially keen to acquire an MG B or Midget, as my dad also owns an MGB GT which is a cracking wee car. We first took a look at a car we found on eBay that turned out to be a complete rust-bucket. The driver-side door wouldn't shut after we opened it and it would have required thousands of investment and substantial rebuilding to become roadworthy. A few weeks later we decided to take a look at another GT, which whilst very tired and in need of a fair bit of work was at least a solid enough shell. The guy looking to sell it runs a classic car business and had panels from other cars he was willing to include in any deal to help us with a rebuild project. We gave it serious thought but in the end we concluded that for the moment it wasn't something we could be sure of committing to, but it's definitely something we'll look at again. It was certainly a valuable learning experience and whilst I would want to consult my dad when buying my first car, I now feel as though I have a much better idea of what to look for as "tell-tale signs" of problems in a classic.

I caught up with old school-friends, most of whom I don't see so much of now they're in Edinburgh. I don't say it much, but they're all great people. I look forward to catching up with them all again at Christmas, if not before then. I'm sure I'll head across at some point over the next couple of months. Quick shout out to Chris Dyer who is on his languages year abroad studying in Malaga and Milan.

Since getting back to Glasgow I attended Nick Clegg's well documented meeting with Lib Dem activists in the city, replaced a broken cooker hood, been to a few Thistle games, and finished a summer marathon viewing of The West Wing. Whilst the summer has been light relief, it has latterly dragged on a little and I'm actually glad to be getting back to work at Uni. With this being my junior honours year, I'll be focusing on honours courses of my own choosing rather than solely taking core courses, which I hope will be more rewarding. I'm especially looking forward to my Law course about the Scots Law Human Rights context and my second semester Politics option on Egalitarianism and its Critics. Whilst it will be good to see people again, it will be a fair bit quieter this year, especially in semester two, as lots of people will be studying abroad. John's already in Toronto and seems to be enjoying himself with a frenetic workload and ample other stuff to keep him amused. He was impressed with Thistle in their 1-1 draw against Hamilton when I roped him along to Firhill in August so hopefully I can persuade him back when he returns! I'm looking to get more involved in the local Lib Dem and the Uni Debating scenes if time allows!

After a difficult start, Thistle are really picking up some form. Just yesterday we dispatched Ayr in a comfortable 4-0 victory. The First Division is really tight after 6 games, only 2 points separating 2nd top from 2nd bottom. We look really settled as a team now and McNamara could really make a big impact if we keep this up.

Who knows what the next year holds? Bring it on.

Plethora of Stuff

Okay I've been neglecting the blog (again) so I'm going to do a wee blitz of an update across a variety of stuff:

Rugby - Six Nations Post Mortem

Max Evans scores an excellent
solo effort at Twickenham

So Scotland avoided the wooden spoon after a spirited display at Twickenham and a comfortable win over the Italians at Murrayfield. Just as well really, because that side really should be much more competitive. Good to see Ruaridh Jackson (Gordonian) come on to a game after a difficult début, and also to see a bit of heart restored to the team. Hopefully the World Cup will see the fruits of the labour in another frustrating 6 Nations campaign.

Thistle are falling up the stairs again

Kris Doolan's on fire

Thistle have had a reasonable run, only having been beaten twice since about October. Accomplished victories against QOTS and Stirling and a cracking 2-0 win at Stark's Park against my wee team have been the highlights of the last few weeks. True to form, though, the 1-0 reverse against Cowdenbeath at Firhill was absolutely brutal to watch and sums up why we're not in among the title hunt. It's pleasing to see that Kris Doolan has gone from being farmed out on loan to Clyde last season to having a good shout at the Orange Boot for the First Division. Work in progress...

England slump in the ICC World Cup

Probably Andrew Strauss'
last ODI campaign

Cricket. England were their usual unpredictable selves at the ICC World Cup. Dramatic tie with India, ghastly loss against Ireland, a mercurial victory over South Africa and a whimper against Sri Lanka. They've been using tiredness from a very long Ashes series as an excuse for some of it, but the truth is the appetite just wasn't there. Still at least the Aussies got papped out as well by Pakistan. Their semi-final with India should be a cracker!

F1 season up and running, but not quite on the Button

Button unlucky with
the drive-through

F1. So after the abandonment of the opening event in Bahrain owing to the unrest there, things finally got under way in Melbourne. McLaren will be really pleased to have made significant strides given how far behind they were in pre-season testing, but the good performance of the Red Bulls and in particular Vettel this weekend is ominous. Button had a frustrating race and I hope he doesn't get left behind this year. Hopefully his aptitude with nursing tyres will assist him later on in the season given the way Pirelli have designed the tyres to degrade much quicker. Bring on Malaysia in a fortnight!

University - Tedium and Treachery

Semester 2 is done and dusted bar the exam diet in May. This semester has been a right drag: private law galore with a slightly underwhelming IR Politics class. Hoping to escape without substantial damage to the GPA...

Student Politics:
violent or peaceful
it's as effective as this

University environment is turning into a bit of a political Basra just now, so it's probably just as well the semester's over. The Hetherington stuff has descended into farce and a potentially constructive source of protest has just turned into an opportunity for extremists to polarise and shut-down rational debate. The University Management have been complete and utter cowards, both in their consultation process and in failing to stand-up to the idiots who have committed acts of violence, criminal damage and have been an all-round nuisance. Equally the deployment of the police earlier this week was poorly handled, although accusations of police "violence" so far as I can see have been unfounded.


Final hat tip is to the guy who outed the Free Hetherington lot as a bunch of hypocrites when he was assaulted and intimidated at their meeting for (legally) filming proceedings. Anarchists who believe in freedom of expression except when people disagree with them; who believe in the tyranny of the majority; and who want to preserve and expand the funding of a bigger state. At least the irony isn't lost on some of the mainstream media. Can't stand Peston but he's called the bluff in the context of the scenes in London....

Peston gets it spot on (for once)

Spring Break

So I'm finally off and free for a bit just to wind-down a bit. I've applied to a couple of potential summer placements and will be looking around for other stuff before last deadlines close. Spending most of it in Aberdeen, but will be making fleeting visits to Glasgow and elsewhere.

Photographer waited 20 years for a cheery photo of Aberdeen

Got a few football games to take-in, including Queen of the South on Saturday, Falkirk the following Tuesday, then Ross County and Morton near the back half of the month. Unfortunately I'll miss the last game of the season at Firhill against Raith Rovers because my Commercial Law exam is, of all times, on that Saturday afternoon :rage: which is most frustrating.

Life Plan

If you're reading, geeza place!

The latest idea I have is to finish my LLB and go to do a postgraduate LLM in the United States. Obviously it's outrageously expensive, but there are some potential avenues for scholarships which, if successful, cover the cost of the whole experience. Personal preference at the moment is to apply to the University of Pennsylvania which is situated in Philadelphia. I'd absolutely love to live, work and learn out there for a year. They've got some really good public law courses available which focus on constitutional law and the relationship between politics and the law.

Final Thought: Quote for the day

Penn was set up by Benjamin Franklin, and I guess I'll round off this bilge with a pearl of wisdom from the man himself:

"Fatigue is the best pillow"

Night night.

Welsh Dragon Scorches Murrayfield and other news

Poor result today at Murrayfield. A high error count was caused by poor ball handling and carrier support. The strong performance in Paris should have been a springboard onto a good tournament but in the face of an organised (though far from spectacular) Welsh team has dumped Scotland firmly in the fight to avoid the wooden spoon.

Elsewhere, the Glasgow Uni Law Ball was on Friday evening. They held it at the Glasgow Science Centre again and as usual it was a great night (well, it became morning... the official hours of sleep were 5:45am until 11am!): food, alcohol and most of all the craic. I'll go no further than to say that seeing certain people in a different environment was if nothing else illuminating...

What I didn't expect was to be helping to change a burst tyre the following morning! Road surface conditions on Anniesland Road at around Scotstoun are absolutely diabolical. Vehicle concerned was one of several that had fallen victim to the various fissures and pot-holes. I've seen better roads in Malta, even Libya! Conditions are just as bad on adjoining streets but after the winter we've just had it's not that surprising. They'll really have to get to grips with it soon, though, as it's palpably dangerous.

Anyway a Politics essay on whether the state is the primary actor in international Politics to write for Monday coming up. Hopefully my body-clock will reset itself some time before I graduate.