The madness of keeping students in debt
Of all the nonsense spoken about student loans, the greatest silliness came from the government itself in saying students could not repay their loans early. When our problems come from too much borrowing, why force people to stay in debt?
Too much debt – by the government and consumers – is the cause of the financial crisis that has caused ministers to make students pay more for their own education. The loans system ensures they pay after they graduate and start earning, but rather than allow those who can to redeem their loans prematurely, the government proposed a penalty of several thousand pounds on those who tried to repay within the scheduled timescale.
It seems that was a Tory sop to Liberal Democrats, who in confused thinking, thought that allowing the rich to repay loans was unfair to less well-off students who would face years of interest payments. It’s harder to come up with a more perverse view than that, and thankfully the Coalition has belatedly abandoned that nonsense – though only by giving a concession to the LibDems so allow them to choose a universities admissions watchdog the Tories do not want.
When thirty-somethings are likely to face mortgage instalments, credit-card repayments and still be asked to put money into a pension pot, there could be no justification in making them continue with student loans too. Those lucky enough to earn sufficient to pay off their loans - those with generous parents or who inherit sums, or those with a healthy aversion to debt – should not be barred from redeeming their loans.
A penalty would be financially justifiable only if the interest on the loans was so high that the government lost out by early redemption. In fact the interest is so attractive that many graduates would be wise to keep their student loans going rather than take on more expensive forms of debt.
And if the Student Loan Company receives premature repayments of principal it could have even more funds to lend to those poorer students that the LibDems want to protect. But as a lesson in finance, the attempt to force unwilling people to remain in debt made no sense. Neither prudence nor common sense came into it.
