Student loan repayment tool ‘dangerous beyond belief’
Changes were made to the SLC website earlier this month. The site now allows graduates to see up-to-date information about their balance and offers an online repayment option.
Previously, graduates received an annual statement by post containing information which could have been out of date due to the infrequent data sharing between HMRC and the SLC.
But MoneySavingExpert.com founder Martin Lewis says the changes to the site fly in the face of evidence and recommendations presented to the government and SLC, and promote financially poor decisions by graduates.
Redesign of statement and system
Last year Martin Lewis, MSE and the Russell Group of universities proposed a radical redesign of the student loan statement, backed up by a 91% success rate when tested for understanding.
The proposed statement aimed to reflect the true cost of higher education, painting a more accurate picture of a graduate’s lifetime repayments based on earnings, rather than a nominal “debt” figure which bears only a loose resemblance to the real cost for most.
There was also a request to rename the statement, and system, to call it a “graduate contribution”.
However, the SLC has now launched its redesigned student loan repayment system, apparently disregarding these key proposals.
Quick repayment option
The new system offers graduates the ability to make ‘quick repayments’ – in part or in full – without logging in.
But Lewis says that for many graduates making extra payments doesn’t make any difference to what they have to repay in future and is therefore just flushing money away unnecessarily. Worse still, once voluntary overpayments are made, they can’t be undone.
This quick repayment system was live for more than a week without warning graduates of this danger.
However, when MSE notified the SLC that it was planning to warn about the dangers of quick repayments, the SLC added some warning text to the site.
Scaring graduates into repayments
When graduates login to the new Gov.uk site, they see a large, overall “debt” figure front and centre. But Lewis says that continuing to focus on the damaging “your balance” figure is against expert recommendations, and could scare graduates into making repayments that aren’t in their best interests.
Lewis said: “The first thing university leavers see when they log in, in a large font, is the amount of ‘debt’ they owe. This is demoralising, damaging and dangerous. Owing £30,000, £300,000 or £3 million makes no difference to your annual repayments, which are set at 9% of everything you earn over a threshold (currently £26,575 per year).
“The only impact the amount of debt has is whether you clear it or not within the 30 years before it wipes. And it’s predicted the vast majority – 83% – of university leavers won’t be earning enough that their repayments clear it in full. They’ll keep repaying it for the whole 30 years, like an additional tax – so the debt amount for them is pretty irrelevant.
“Yet this new site follows the old one in majoring on this scary, but often irrelevant, number. That makes many think they should overpay like a normal debt. Yet unless you’re making huge overpayments, for most people overpaying does diddly squat – you’ll still continue to repay 9% of everything over the threshold for 30 years. Overpaying is a total waste of money.”
According to the Institute for Fiscal Studies, 83% of graduates who started their course after 2012 will not have fully repaid their loans by the time they are written off, 30 years after graduation.
Lewis went on to say that the new site should have detailed warnings, cautions and explanations about quick repayments and that the absence of these was “irresponsible and dangerous beyond belief”.
The money guru said he would be writing to the Student Loans Company and the universities minister, Michelle Donelan MP, calling for the quick repayment facility to be removed immediately.
What does SLC say?
An SLC spokesperson said: “The Online Repayment Service (ORS) provides the most up to date student loan account information that has ever been made available to customers.
“ORS is designed to make it easier for graduates to access their account, manage their student loan and to avoid over repayment. The service was extensively researched and tested prior to launch and the overriding feedback from our customers was that they wanted to be able to quickly and easily access their loan balance online. The balance information is particularly important to customers in the final stages of repayment as it helps them to determine when they should switch their repayments to Direct Debit. However, if they don’t take this action and go on to over-repay, we make every effort to refund their money. Since March of this year, where we hold up to date customer details, we have started to automatically refunding customers who have over-repaid, directly into their bank account.
“The online service provides additional information on the unique nature of student loans and the conditions of repayment. This information makes clear that customers should carefully consider their circumstances before making any additional voluntary repayments and that any outstanding balance is written off at the end of the loan. The quick payment option also makes it easier for the small proportion of customers who have someone (such as a parent) making repayments on their behalf and for overseas customers who are required to make monthly repayments. We have ensured the additional information on the unique nature of student loans and conditions of repayment is visible at this point.”