The claim
“Yes university fees will go up, but repayments will go down. Every single graduate will pay less than they did under Labour.”
Nick Clegg MP, Deputy Prime Minister’s Questions, April 5, 2011
The background
The Lib Dem leader was harangued by Harriet Harman and heckled as a “toff” by Labour bankbenchers today, as he tried to sell the Government’s new “social mobility strategy”.
Nick Clegg pledged to end unpaid internships, in order to ensure poorer graduates are given a “fair chance” against their better-off contemporaries in the race for jobs. He insisted that in future careers will not be defined by “who your father’s friends are”.
The Westminster School-educated Cambridge graduate, who himself once secured an internship at a Finnish Bank through his father’s friend, can’t have imagined for a moment that he’d get an easy ride.
But did Mr Clegg keep his cool, or did he succumb to hot air?
The analysis
Mr Clegg’s upwardly mobile comments were lost as Miss Harman slammed the government’s policies on Educational Maintenance Allowances and tuition fees as an “assault on the opportunities for young people, especially the poorest”.
It worked. “I AM worked up,” the Lib Dem leader fumed. “There is nothing that will help social mobility by saddling our children and our grandchildren with this generation’s debt.”
Arguably, the largest obstacle to the government’s social mobility plan is the raising of tuition fees to a maximum of £9,000.
With most universities setting their fees at the max (see FactCheck: University fees set to run riot), the concern is that poorer kids face building up vast debts, or will be put off going altogether.
Mr Clegg rejected this today, claiming: “Yes university fees will go up, but repayments will go down. Every single graduate will pay less than they did under Labour”.
FactCheck wants to get this straight.
Under the current system, students start paying back 9p in every £1 they earn over £15,000 (per annum) after graduating. This runs at an RPI-adjusted rate of 0 per cent and is written off after 25 years.
Under the new system, students only start paying back when they’re earning more than £21,000 a year. Until they’re earning £21,000 interest is charged at RPI-adjusted 0 per cent.
From £21,000 a higher rate is gradually phased in reaching a maximum rate of 3 per cent above inflation when they hit the earnings threshold of £41,000.
Students will have five more years to pay it off – with the debt written off after 30 years.
So upfront, graduates will be better off – if you were to look at their monthly paycheque.
Grads at the moment pay 9p in every pound they earn – once they’re earning more than £15,000 – to the Student Loans Company. Under the new system, they’ll pay 9p in every £1 they earn again, but only once they reach the threshold of £21,000. That’s less per month.
But the crucial point is that over their lifetime, the majority will pay more. Graduates will be paying off less for longer, in today’s prices.
This will benefit a minority, with the Institute of Fiscal Studies estimating that 23 per cent of those in the lowest earning jobs will pay less over their lifetime.
But it leaves the majority of graduates worse off. In fact, the average graduate, over their lifetime, will pay off £9,400 extra – according to the IFS’s sums.
The verdict
Mr Clegg didn’t give us a time frame, but it would be remiss of us not to say that on a monthly basis, graduate repayments will go down.
Yet look at it over a graduate’s lifetime, and it only benefits the poorest graduates.
The overwhelming majority – 77 per cent – will end up paying off an extra £9,400.
And it’s the people that fall into this average earning bracket that fill crucial jobs in our society: teachers, engineers and so on.
By Emma Thelwell
