Top universities and MSE call for current student loan statement to be scrapped
MoneySavingExpert.com, together with the Russell Group of universities, is calling on the Government to scrap the current student loan statement, after 90% of respondents to our poll question said our redesigned version of the statement helped them understand the student loans system.
Update Tue 21 Jan: In December, the Government announced that paper statements will be replaced by an online student loans service – an attempt to modernise the repayment system and provide students and graduates with current information about their loans. However, the Government is yet to confirm whether it will change the way in which student loan statements are presented as part of the new online service.
A new report out today shows that thousands of students, graduates and parents have given a radical redesign of the statement an unequivocal seal of approval.
MoneySavingExpert and the Russell Group, which represents 24 UK universities, ripped up the existing statement and launched an alternative in February, the latest version of which can be seen here.
This has been tested by nearly 6,000 people, and following the results, we and the Russell Group are urgently calling on the Government and the Student Loans Company (SLC) to look at using our new statement as a basis from which to redesign the official version.
At the moment, graduates are sent an annual student loan statement from the SLC, telling them of their outstanding 'debt' and the interest being added.
See our Student Loans Mythbusting guide for more help understanding your loan.
Martin: 'The current student loan statement is financially dangerous'
Martin Lewis, founder of MoneySavingExpert.com, said: "The current student loan statement is a blunt, misleading tool that is financially dangerous. It prompts often unnecessary fear and distress from some of the millions who receive it. And worse, as it's a gateway document, this reverberates across society, and therefore risks wrongly deterring many from a future of higher education.
"For the majority of university leavers, their outstanding 'debt' is a mostly meaningless figure that bears only a loose resemblance to what they need to repay. However, this figure, and the interest added, is the prime data covered on the current statement.
"In fact, a more accurate name for the student loan system would be a 'graduate contribution', as what counts most isn't what's owed but what's repaid, which depends almost entirely on earnings. Yet the last year's annual repayment is only mentioned in passing, and there's no attempt to explain total repayments over the life of the loan.
"Focusing on the wrong info can have damaging consequences for individuals. One woman told me how the fear of the growing interest on her statement meant she used an inheritance to overpay thousands. But as she was in a low-earning profession, with little likelihood of ever clearing much, her overpayment wouldn't have any impact on what she'd repay in future – so she'd simply flushed the cash away.
"That's why we started from scratch on the statement. Thankfully, for a first attempt, the success rates were extraordinary.
"Therefore, with the Augar report on further and higher education due, we are urgently calling on it and the Government to look at using our statement as a basis to redesign the official statement. This would improve understanding and decision-making for past, present and future students alike."
Martin appeared on Politics Live to talk about the changes, you can see a clip below:
What were the findings?
Our survey had 5,796 respondents, though not all answered all questions. Here are the findings:
- 96% of 2,683 respondents said the new information was clear.
- 90% of 2,680 respondents said the statement helped them understand the student finance system.
- A 91% success rate was achieved when respondents were tested to ensure they really did understand the more complex information correctly.
What does our redesigned statement show?
Our redesigned Graduate Contribution Statement, which could be used for Plan 1 and 2 loans, gives people information about their personal situation, but also explains how student loan contributions really work.
- Focuses on repayments rather than debt. For the majority of university leavers, their outstanding 'debt' bears only a loose resemblance to what they need to repay. However, this figure, and the interest added, is the primary data given on the current statement – leaving many unnecessarily scared.
- Details how the repayments actually work. Today's university leavers repay 9% of everything earned above a threshold, currently £25,725 (in England and Wales), for 30 years, unless they clear the debt before that.
So whether you owe £10,000, £50,000 or £3 million – with a £30,000 salary, you repay £385 a year. The only impact the size of the 'debt' has is whether you'll clear what you owe before it wipes.
- Explains what contributions are made each month, and over the year. This will show how much you're actually repaying now on a monthly basis, instead of a long list of figures.
- Predicts the total cost of higher education. As it's predicted that 83% of university leavers will keep paying for the full 30 years, the total cost is often not related to the debt.
Our statement instead focuses on the estimated total amount they will repay within the 30 years, in cash terms and real terms factoring in inflation, based on their earnings trajectory.
What does the Russell Group say?
David Thompson, senior policy analyst at the Russell Group, said: "The student finance system can be confusing, particularly for younger students who are unfamiliar with some of the terminology it uses. Our new Graduate Contribution Statement is a step in the right direction towards greater transparency, easier-to-understand language and better, more relevant information for graduates about their loans.
"The feedback it received through both our online survey and the focus groups we conducted was overwhelmingly positive. Respondents praised the new, expected lifetime repayments feature and the improved information about the 30-year forgiveness period as particularly helpful.
"I hope that the Department for Education and the Student Loans Company can act swiftly to adopt the best features of our proposed new statement. Doing so would not only be in the clear interest of graduates currently receiving statements, but may also help reassure both current and prospective students about the way student finance really works."
What does the Government say?
A Department for Education spokesperson said: "The Government is conducting a major review of post-18 education and funding to consider how the system can work better for everyone, ensuring value for money for both students and taxpayers.
"The review is also looking at how information about student finance can be communicated as clearly as possible to borrowers and we welcome the contribution from Martin Lewis and the Russell Group.
"Student loan statements are currently issued annually, setting out the balance, repayments and interest for borrowers but we are continually working to improve the repayment system. We are exploring how students taking out a student loan can have better access to much more up-to-date information on their repayments."
A Student Loans Company spokesperson said: "Based on research and feedback from our customers, the Student Loans Company is working towards making more repayment information available to customers online.
"We are already engaged with customers to explore how best to present repayment information and always welcome discussion on how to make our communications transparent."
Have your say
This is an open discussion and the comments do not represent the views of MSE. We want everyone to enjoy using our site but spam, bullying and offensive comments will not be tolerated. Posts may be deleted and repeat offenders blocked at our discretion. Please contact email@example.com if you wish to report any comments.