It feels weird to truly understand the terms of your loan nearly a decade after it started, and nearly three years after you started repaying it. Frankly, it feels bad to admit. But that is the case for many of us with the UK Plan 2 Student Loan.
Of course, the onus was on us. We had the ability to read the Government websites and truly understand the terms, before making the decision. Many of us would have probably made the same decision anyway.
But students are already overworked. The hardest exams so far are on the horizon. We’ve got to actually apply, and pick our five universities. Some may even be working part-time jobs.
So, when teachers and trusted adults tell us to effectively ignore the loan, many of us do. So many of us were blind to the true scale of what we were taking on.
She was 17 when she first began looking into student finance and 18 when she signed up for it. She says the scale and longevity of the debt was not fully explained. “The way it was explained, it didn’t really capture the long-term nature of it,” she says. “It was underplayed.”
She says the advice from teachers was that the loans would be a tiny percentage of their pay, and it was unlikely they would be repaid in full, with the outstanding balance written off after 30 years.
I was pretty extensive in my university research. I was trawling through Unistats (now DiscoverUni), to the point where I designed a TUI to extract the data I really wanted from the website, so that I could quickly trawl through the myriad of universities, and the different course permutations that existed.
Before I’d even started my career, I was already aware of my likely earnings, based on those who had travelled the same path.
So, despite the fact that I knew I’d be a high earner, I was still blind to the fact that my interest rate would be doubled once I reached that point. All of my decision making was less about minimizing the loan, but more about maximizing my student experience.
Looking back, there are a lot of forks in the road, where I made a decision partially based on my naïve understanding of the system. And while, even with the knowledge, I may have made the same decision, I just wish I had the full picture to make it.
Did teachers have perverse incentives to get us to ignore the realities of the loans?
We’ve already seen this with the English Baccalaureate. Many students, myself included, were driven to this path by false promises from our teachers, that the EBacc would improve our university admission odds. Of course, anyone who has gone through the system now knows this is false - the EBacc does not matter for any good university1.
However, part of this adoption was driven by Government pressures. Teachers were actively pushing students towards it, because it would lead to higher placements in league tables.
Just as with the EBacc, institutional incentives may have influenced how student loans were presented to us. Sixth forms and colleges must publish “destination data”, which shows the short-term outcomes for students at the institution. Inevitably, this is used as advertising material.
Given the cultural reverence for university attendance by parents & students, they’ll want to boost the statistics here, even when it isn’t the right option.
Similarly, did the various Governments have incentives to push students towards this path? A ridiculously high interest rate, and a long-term commitment, allow the Government to extract a lot of wealth from your high earners, all without it being a tax.
As we now watch fiscal drag being applied to the loan, Governments can grow this base of “high earners”, totally separated from the underlying financial data.
The obvious fix here is properly communicating the reality of the loan. Producing material that communicates the loan in real terms to financially illiterate teenagers. Having educators truly make students understand the reality of the choice they are taking. The loan is complicated, and only grows in complexity throughout your career: you have to communicate as much of this as early as possible, to give students the best foundation to make informed decisions. Even Martin Lewis knows how difficult it is.
It’s impossible to do it accurately. There are too many variables and assumptions, both on your career, income and on what will happen to the economy. I know you’ll hate that answer […]
But the reality is, will the various parties be interested in this change, while the perverse incentives exist? The loans have only gotten longer: Plan 5 is now 40 years (but without the high earner trap). Demographic change is only driving schools to more insane methods to gain students.
It is heartening to see the campaign against this rising, but those campaigns need to widen their focus to ensure the next generation doesn’t face the same trap as us.
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Most universities did this via omission, but I distinctly remember Cambridge University actively calling it out as something they did not consider. ↩︎