Posts Tagged ‘money’

Grasping and Dickensian: the Student Loans Company

June 24, 2013


Here is a letter I have just sent to my MP (Chris White), to the Minister and Shadow Minister for Business Innovation and Skills (we used call it ‘Education’ – anybody remember that?); to my local paper; and to the Guardian.  Read and learn!

Other people have noticed this already: see The Telegraph from two years ago.  So why is it allowed to continue?

Dear Mr Willetts

 I wish to draw your attention to an aspect of sharp practice currently taking place within the Student Loans Company.  This comes in two parts.  Interest begins to be added to the loan while the student is still studying.  Thus even before there is any prospect whatsoever of repaying the loan, interest is already being added on.  I am aware that interest is at a relatively low rate, though 1.5 percent does not look all that low in a climate where the bank rate is (and has been for a long time) 0.5 percent.  The second issue makes this worse.

 The practice of adding the interest to the principal part of the loan, though apparently innocuous and standard practice for other loans, is in this case outrageous.  Over even a short space of time, the interest chargeable on the interest quickly becomes enormous.  This, as you know, is called compound interest, and constitutes a grasping, Dickensian approach.  Students who are least able to pay, or who are out of work for some time, end up owing much larger sums than anyone imagined likely. 

 I believe, and most parents and students agree with me once they understand the system, that interest should not begin to be added until the student has finalised their studies – either by graduating or by formally leaving the institution of study. 

 Much more importantly, the interest owed should not be calculated at compound rates, but lodged separately from the principal, in another account that does not itself attract interest charges.  Both accounts should be repaid, certainly, but emphatically not at compound rates.

 With your responsibility for encouraging wider access, you will clearly see how this disadvantages less wealthy families.

I think that this can continue for two main reasons – the first is that we are becoming ever more passive as a culture, in the face of government iniquities; ever less likely to feel that we deserve to be protected by government.  But these are not cuts.  We don’t have to suffer them for any wider good.  They are exploitative attacks on the young and vulnerable.

The second reason is structural –  there is a total turnover of students about every three years.  New practices normalise very quickly in that circumstance.  Nobody who undertakes these loans has the time to realise what is going on before they are committed to them, and we tend to trust the preceding cohort to be doing something sensible.

Why is there no outcry?

%d bloggers like this: