Labour peers fight 'grossly unfair' retrospective student loan hike

The bill is designed to make it easier for new higher education providers to start up and call themselves universities. However MoneySavingExpert.com founder Martin Lewis has been working with Labour's Ilford North MP Wes Streeting to make changes to the bill which would protect graduates repaying their loans.

Known as the 'Martin Lewis amendments', they seek to strip ministers of the power to make negative changes to the terms of student loans after they're taken out – and would ensure they're regulated by the Financial Conduct Authority.

The issue relates to a Government U-turn on a promise to increase the threshold at which first-time undergraduates in England who started university in September 2012 and beyond repay student loans. Because the Government has now gone back on its word and frozen the threshold, many students will pay back more (see below for a full explanation).

Martin has previously branded this move "abominable and disgraceful" and has been at the forefront of efforts to have the decision overturned.

Labour peers join the fight

In a blog today Streeting said he'd been "working closely" with Martin on this issue and was "glad that Labour's frontbench in the Lords will be taking up this fight".

The bill's second reading gave peers their first opportunity to debate its contents and flag up their concerns, though they won't get the chance to amend it until the committee stage in a few weeks' time.

Labour's shadow education spokesperson Lord Stevenson of Balmacara told the house that the Government had "almost unbelievably" altered the terms of existing student loans and branded this "grossly unfair", vowing to examine the decision in later stages of the bill's passage.

The bill has to go through two more stages, a third reading in the House of Lords, before any amendments will be considered, it gains Royal Assent and becomes an Act of Parliament (ie, law).

A spokesperson for the Labour Party earlier told MoneySavingExpert that Labour peers would be "probing the Government on various fronts and expressing their concerns" regarding the bill.

And a Liberal Democrat spokesperson said the party also wanted to see the repayment threshold rise every year, adding that Lib Dem MPs in the Commons have already tabled their own amendment to that effect.

Six things you need to know about this retrospective student loan hike 1. The Government said it would increase the student loans threshold each year. First-time undergraduates in England who started on or after September 2012 repay at 9% of everything earned above £21,000. In 2010, when it launched the new system, the Government promised that from April 2017 this £21,000 threshold would rise annually with average earnings.2. In October 2015 the Government reversed that, freezing the threshold until at least 2021. So instead of the threshold going up each year, it'll be stuck at £21,000. This will leave more than two million graduates paying £306 more each year by 2020/21 if they earn over £21,000.3. The Government consulted on it and 84% of responses were against freezing the threshold. Only 5% were in favour, yet it went ahead anyway. 4. Freezing the threshold means many students pay more. For example: if you earn £23,000 and the threshold had increased to £23,000, you'd have repaid nothing, yet as it's stuck at £21,000 you repay £180 a year.5. While it'll add to the cost for lower and middle earners, higher earners gain from this. Most students won't repay in full within the 30 years before the loan is written off. So this change means they'll simply pay more without clearing the debt early. Yet the highest-earning graduates will pay it off quicker, saving on interest. Thus this is a regressive change.6. This is a retrospective change – even those who have already graduated pay more. Quite simply students signed up to one deal and have been given another that's worse for the vast majority of them.

What else is in the bill?

The Higher Education and Research Bill will create a new Office For Students, which will regulate the sector and link the amount that universities can charge students to the quality of their teaching.

It will also introduce sharia-compliant student finance for the first time, so Islamic students can access student finance – something Martin has welcomed as "very good news".

However, he's argued there must be no benefit or disadvantage to sharia student finance when compared with other students' funding arrangements, and that it must work on the same terms as it does for other students.

The full text of the bill and updates on its progress through Parliament can be found here.