The politics of a graduate loan write-off

In DK’s piece comparing the Biden reforms to student loans with the English system, he concludes he’d now rather be an in-state public university student in the US than an English-domiciled undergraduate here, from a finance perspective.

My take is the opposite.

Small print

Even given the new reforms, the student finance system and its different repayment options in the US are horrendously complex. I spent a good hour or two reading on it for this piece; I read DK’s piece several times; and I still can’t swear to fully understanding it.

Complexity increases the risk of mis-selling – which is a significant issue especially among low value private providers – and deterrence of potential students. And the English system still guarantees to any student that the fee they pay is capped, and that their repayments are income contingent. The downside of universities having fixed income is the upside that graduates have fixed fee costs, and only repay on an affordable basis.

Importantly, unlike the US, student loans in this country also don’t count on an individual’s credit score – and the problems identified in the US around graduates unable to save for retirement or take out mortgages stem, in part, from this treatment of student debt much more like commercial debt.

Money off

But the Biden plan is significant in its impact on graduates. The combined effect of all the changes is that for a graduate in the US earning $60,000, their monthly payments will be around $123 a month. By contrast, that same borrower in the UK, earning £51,000 (the same amount) on a Plan 2 repayment, would be paying around £177 a month, or around $207. The English graduate will also be paying interest on that sum (and the US graduate will not), and the English graduate wouldn’t see their debt wiped for 40 years, whereas the US graduate has just seen potentially 40%-80% of their balance wiped, and additionally may see a total write off after ten years, depending on their level of loans.

And that’s where the politics of this get really interesting. What would happen if the English system, different as it is, started to look seriously at debt write offs in a systemic way?

Polling is pretty even in the US on the merits of the Biden plan, though has been huge pushback from the Republicans, obviously – both deficit hawks and blowhards. The criticism is twofold: that it is unfair on hard working graduates who have already paid their loans back, but even more that it is egregiously inequitable treatment for hard working people who aren’t chai latte drinking hippies in Berkeley, who never went to university, and who pay their own way – and whose taxes are now being used as part of a $300bn plan to pay off those hippies’ debts on top.

No hippies

There’s a great deal of legitimacy in this criticism, on the face of it (though this fantastically salty engagement by the *official White House Twitter feed* shows that Congressional Republicans are all in favour of debt forgiveness when it benefits them).

And you can imagine easily enough an equivalent debate in England were such a similar plan to be introduced. It would be the same debate as to why higher education should be 100 per cent tax funded – why does a salt of the earth Red Waller’s tax go to pay for middle and upper class students to go to university for free, and so on. But I think a debt forgiveness debate would even more aggressive, because there’s something psychological about debt being written off – the visibility of it – in the way that debt never being incurred because behind the scenes, the state pays for university places, isn’t. It would be seen as even more of a middle class bung and political boondoggle.

But that politics goes the other way too. What if the NUS, and other advocates of HE finance reform, and even the Labour party, swing behind a similar call for student loan debt forgiveness in England? Rather than calling for a graduate tax, or even totally free higher education, what if there were similar campaigns for one off (or in practice, pretty regular) debt write offs for graduates on a national basis? To pay for such fripperies as gas bills, and rent deposits?

Of course, such a plan would not be progressive in the truest sense of the word (because the lowest income adults would not have gone to university, and those graduates on lower incomes are currently protected by the student loan repayment system anyway). The real beneficiaries, it would become apparent quickly, would be middle class graduates with median to above median incomes, in their 20s and 30s and 40s, some of whom are also holding mortgage debt and childcare payments. Indeed, in the US, it looks like some of the main beneficiaries are those who studied postgraduate qualifications in law and finance, and who accrued the most debt but who are also on track to lucrative careers.

An active choice

But what if Labour said (in so many words) – so what? What if Labour leaned into something which said, sure, this is policy in the vested interest of our key demographic of youngish graduates, in urban areas, with high income prospects but currently cash constrained, and unable to get on the housing ladder. But no more so than Conservative determination not to change planning law is vested interest from their key demographics. What is politics, after all, if not competing visions for different groups of voters?

And it’s precisely because such a scheme would benefit articulate, middle class, younger adults that it would become so visible. It would be debated in broadsheet comment pieces, in think tank publications, in seminars and conferences, and in the Commons. It would stir up huge opposition. But it would also mobilise a group of people behind Labour who feel (with some justification) pretty stiffed every way they look from politics at the moment.

I’ve written before about how education status is becoming the biggest political cleavage in Britain. If the graduate population keeps growing, the student loan book keeps rising, and indebted graduates keep wanting to vote Labour – and, as a new paper from Clare Callendar et al shows, I think for the first time, the evidence grows that student loan repayments are affecting housing purchases in England too – then it may start to become economically and politically attractive to consider something similar.

When you consider how well trodden the path is from US policy to England, don’t bet against something similar being touted for inclusion in Labour manifesto 2034.