Student loan penalty plan ditched

 

Plans to impose penalties on students who pay off university loans early are being ditched, the Government is expected to announce next week.

Ministers were considering introducing annual charges of around 5% on payments above a certain limit to prevent wealthier students avoiding interest charges on the new standard 30-year repayment plans.

The proposals were billed as "progressive" but the Government is dropping them amid fears hundreds of thousands of students would end up losing out.

It has been reported the Lib Dem scheme was scrapped as part of a deal that saw Prime Minister David Cameron back down over Business Secretary Vince Cable's choice of Professor Les Ebdon to head the Office for Fair Access (Offa) despite fierce Conservative opposition.

A Downing Street source told The Telegraph: "The Lib Dems were very keen to appoint Ebdon and we felt very strongly about penalties for early repayment of loans. This is hopefully good news for tens of thousands of families, as well as many Conservative MPs who had raised concerns about the penalties."

From September students will be able to take out loans to cover their annual tuition fees bill of up to £9,000 as well as their living costs.

They will begin to repay the loans once they earn more than £21,000 a year and any outstanding balance will be written off after 30 years.

Consultation on the plans to introduce early penalty fees closed earlier this year and ministers are expected to announce the plans have been dropped next week.

A No 10 spokesman said: "The consultation has now closed and we will come forward with our response shortly."

As the director general of Offa, Prof Ebdon will be responsible for ensuring the introduction of higher tuition fees do not deter students from low-income backgrounds from going to university.

His appointment is said to have been opposed by Education Secretary Michael Gove who is reported to believe that he was more interested in social engineering than promoting excellence in universities.

That view was echoed by Conservatives on the Commons Business, Innovations and Skills Committee, which last week called on the Government to reopen the selection process following a pre-appointment hearing with Prof Ebdon.

Sally Hunt, general secretary of the University and College Union (UCU), said: "Government should be prioritising how to make it easier for poorer families to afford university rather than focusing on yet another policy designed to make life easier for the wealthiest in our society. Today's move exposes once again that we really are not all in this together.

"While no one would condemn any family that sought to pay off their children's debt as fast as possible, today's move simply exposes yet again what an inconsistent mess the higher education reforms are."

Liam Burns, president of the National Union of Students (NUS), said: "Early repayment penalties ultimately risk making the student loans system more regressive, but the issue of whether they should be barred or encouraged is a smoke screen that obscures the truth about paying back earlier than required.

"Paying back early is rarely a rational decision for those who have saved money for college or have a little bit extra to spare and most would be better off investing it in an ISA than handing it to the Student Loans Company.

"Ministers must come clean on student finance to ensure those on low and middle incomes are not duped into chipping away at their outstanding debt even when it rarely makes financial sense to do so, particularly for those who are seeking to get on the housing ladder or start a family.

"In reality graduates shouldn't be able to repay early unless that repayment is over half of what is owed. That way debt adverse, low earning graduates won't be duped into throwing away capital earned early on in life when they might not have had to pay that amount at all."

The think-tank CentreForum, which called on the Government to ditch the plans last year, said the move would help the most "debt averse".

Chief economist Tim Leunig said: "This is the right decision taken for the right reasons. Evidence shows that the students who repay their loans early are not the wealthiest, but the most debt averse.

"Students should not worry about taking a loan from the student loan company. Equally government should not penalise those who want to get out of debt for whatever reason."

Shabana Mahmood, shadow higher education minister, said: "Today we've seen yet another U-turn by a Government whose fees policy is unravelling by the day, creating chaos and confusion for students and universities alike.

"This move will do nothing to make the system fairer. If the Government really wanted to help students now, it could reverse the corporation tax cut for the banks and use the money to help cut fees to a maximum of £6,000. Instead, we have seen student places cut by 15,000 and applications fall by 7.4% compared to 2011.

"That is the difference between Labour, which makes investing in skills and knowledge a priority, and an out of touch Tory-led Government that is restricting opportunity and damaging the future of our economy."

PA

News
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
science
News
Richard Dawkins dedicated his book 'The Greatest Show on Earth' to Josh Timonen
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Extras
indybest
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Education

Network Manager - Oldham area - Up to £30,000

£26000 - £30000 per annum + Benefits: Ashdown Group: Working with an exciting ...

Teacher of special needs required for Burton on Trent

£100 - £140 per day: Randstad Education Nottingham: Exciting Opportunity, Rand...

Behaviour Support Assistant

£50 - £60 per day: Randstad Education Nottingham: Behaviour Support Worker Th...

Youth Worker / Teaching Assistant - Nottingham

£50 - £60 per day: Randstad Education Nottingham: Randstad Education are looki...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?