§ Mr. Nick St. Aubyn (Guildford)
I beg to move,
That leave be given to bring in a Bill to amend the law relating to student loans in respect of the entitlement of borrowers to defer repayment of loans and in respect of the rate of interest payable on loans.The Bill gives all hon. Members a very special opportunity—the chance to spur the Government into correcting an injustice that was created by Ministers and that hon. Members on both sides of the House agree should be corrected. Nearly four years ago, the Government scrapped student grants and replaced them with loans, which must be repaid by graduates who earn as little as £10,000 a year. What has been the effect of that action?
Increasing numbers of school leavers from poorer homes have been deterred from taking up university courses. Their numbers, which had doubled in the 10 years to 1997, during the great expansion of higher education under the previous Conservative Government, have stood still since then. This Government's target, which was to build on our success by ensuring that up to 50 per cent. of school leavers went to university, is now in tatters. Yet again, we see how a Labour Government, who promise more and take more, have delivered less.
As the Secretary of State for Education and Employment told the House only the other week, the number of students from the very poorest homes has risen slightly since 1997—by about 500—to 5,000 a year. However, the total number of students from poorer homes—totalling about 65,000 a year—has declined during the first three years of this Government.
It is no use blaming the universities The Chancellor of the Exchequer tried that last year, and all the evidence since has shown how wrong he was. Our universities try as hard as they can to attract the top talent, wherever it comes from. Labour's decision to force students to repay their much bigger loans when they earn as little as £10,000 a year is the real deterrent today.
The Bill gives the House the chance to choose between two ways in which to correct that injustice. The first is Labour's way. Labour want to focus on where students come from, offering them extra support if they live in deprived areas, as designated by Whitehall officials. That will simply create a postcode lottery. A child from a Georgian house in Lambeth will qualify for the grant; a school leaver from a Guildford council house will be denied the support that he or she needs.
Universities UK told me in a letter today that it shares my concern about the accuracy of using postcodes, saying thatin some postcode areas, wealth and poverty live side-by-side.Yet again, we see how Labour's obsession with people's backgrounds fails to address the real problem. I want to focus on where students go, not where they have come from. That my way and is what my Bill would achieve.
Most students make it into well paid jobs. The average starting salary for graduates is £15,500 a year; for those in graduate-type jobs, it is more than £18,500 a year. Most graduates can therefore afford to put back into the system a fair share of what they have gained from it. By so doing, they help others to follow in their footsteps.
156 Some graduates, however, will never earn a high wage. Students from homes whose family income has only ever reached £10,000 a year must think twice before embarking on a course at university when they have to repay a loan despite earning just £10,000 a year. My Bill will require graduates to repay their loans only when they are earning £20,000 a year, sending a clear signal to those from less well-off homes that we really believe in their potential.
Graduates who will never earn £20,000 a year will be let off the hook. That must be paid for, and I will explain how. Indeed, I would not be allowed to introduce the Bill if its framework did not provide the means to pay for that. One of the scandals of the Government's handling of student finance is the way in which they have sold off part of the student loan book at the thumping loss of £150 million. Students were charged £150 million in tuition fees, but what did the Government do with the money? They blew it on a lousy deal with banks in the City, because the student debt was unmarketable. Now they are creating even more of that unmarketable debt through their loan system.
I know that the previous Government had pencilled in the sale of the student loan book, but we would never have let it go at such a low price. As the Under-Secretary of State for Education and Employment, the hon. Member for Barking (Ms Hodge), knows—she was the Chairman of the Education Sub-Committee of the Select Committee on Education and Employment—I wrote a memorandum on this subject and it appeared in our Committee's first report. I suggested that universities should manage the debts, so that if debts had hidden value it would be unlocked in the hands of those who need it most—the universities themselves.
The next Conservative Government will not repeat Labour's mistake. We will hand over the outstanding debt to the universities at the same time as freeing them from being tied to the grant system of the Higher Education Funding Council for England. We will ensure that the hidden value in the loan book is unlocked in the hands of the universities.
The thrust of my Bill is to reform the student loan system, so that it is transparent, efficient and, therefore, properly fundable without our ever having to give money away to the banks again. That means that the loans must bear a market rate of interest. Today's loans are charged at the rate of inflation—about 2 per cent. a year. A market rate in line with mortgages would be about 6 or 7 per cent. a year.
The Government tell us that the cost of the interest rate subsidy is 20 per cent. of the amount of the loans. The typical graduate now leaves university with a loan of about £8,500. The cost of removing the subsidy would, all things being equal, be about £1,700 per graduate. However, we do not stop there. The Conservative plan promises a tax change. It is outside the scope of this Bill, but it will be within the scope of tomorrow's Budget. Tax relief on loan repayments can and should offset completely the additional interest charged for students.
On that basis, I am glad to welcome the support of the National Union of Students for the principles behind the Bill. Earlier today, it told me:We do feel that the threshold for repayments should be raised, as the current threshold of 10,000 does not adequately reflect the effort and risks of studying for a degree.157 We would not expect the representative body of students to endorse the raising of the threshold if that were funded by a shift from a subsidised rate of interest to a market rate. However, when taken with the Conservative tax pledge, we are not proposing to do that. The Bill's proposed changes would be paid for out of the efficiency gains from making the loan system simple and transparent.
My Bill will address one other vital issue. Universities UK also told me today:We are particularly concerned about students from poorer families who may be debt averse.I agree. The Education Sub-Committee heard evidence that in many colleges the Government have cut grants for providing students with careers advice by up to 50 per cent. That is a disgrace. We must properly fund the advice that people receive before they take their exams because that is when they decide whether to go to university and obtain a degree.
The combination of my Bill and modest changes in tomorrow's Budget would allow us to tackle the problem. The Government were recently big enough to admit their mistakes on secondary school reforms and to congratulate Guildford on the changes that we have made at one of our schools. Will they learn from Conservative policy on this matter and help our students as well?
Question put and agreed to.
Bill ordered to be brought in by Mr. Nick St. Aubyn, Mr. Stephen O'Brien, Mr. David Ruffley, Mr. Andrew Robathan, Mr. Patrick Nicholls and Miss Julie Kirkbride.