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Students should be praised, not penalised, for paying loans off

Writing 'I will follow the rules' on blackboard

The government is consulting on whether students should be charged for overpaying their student debt. So, those who make early repayments, or who earn more, could pay extra for the privilege. How can this be fair?

With tuition fees set to rise up to £9,000, the relationship between students and universities has changed to one where students can – and should – expect value for money.

At the same time, many more will have to rely on student loans to finance their degree. So to levy a fee on overpaying your debt is, quite frankly, adding insult to injury.

Is this really a progressive system?

The main argument behind charging students for overpaying on their loan is that students on higher incomes would be able to escape the costs of the system earlier. By discouraging early repayments, the government wants to share the burden more evenly between all student borrowers.

The levy would apply once a graduate earns above a certain threshold (eg. £41,000) or repays more than a threshold annual amount (e.g. £3,000).

My concern is that those who overpay on their student debt are not necessarily those on high incomes, though. Some people prefer to overpay simply because they want to be debt-free as soon as possible. This is a personal choice of prioritising debt reduction over spending. Even so, why should people be punished for taking on a job that pays them a good salary?

Most importantly, those who can afford to pay for university up-front will never be part of this system and will therefore never contribute to the cost of student lending. So I can’t see how this is a truly progressive system.

Don’t send students the wrong signal

If there’s one lesson I think people should learn from the recent financial crisis, it is that inane spending is not the way forward.

Instead, it’s important that people learn to be financially responsible, getting rid of debt and saving for the long-term. This is particularly important for young people who face unprecedented costs, not just in education, but also in housing and pension provision.

For many people, a student loan is their first experience of taking on a large debt. Surely, we should make this a positive experience? By imposing charges on overpaying, the government is sending the wrong signal. Instead of encouraging less debt, this system will make debt a permanent feature of some people’s adult lives.


That seems like a good idea, unless the intention is to prepare young people for a life of debt.

The cost of going to university will not rise as much as is feared. In order to attract students, most universities will compete, for example by offering bursaries or discounts on university accommodation. The reason that most universities have set their tuition fees at the maximum of £9,000 per annum is that anything else would make them look second rate compared with their competitors.

The reason for early repayment fees for loans is so that the lender is guaranteed to make a certain minimum profit off his client.

While I understand that this could be set so that this covers the risk of loans that will not be repaid, it does strike me incredible that the government (no less!) is writing it into law that it will make a profit off every student loan.
(This is of course not quite correct, as, under current plans, some people will never have to repay their loans in full, but it will apply to the vast majority of students.)


I think it’s wrong to penalise early payments as this does not reflect the rest of the market, however, I don’t think that they should be praised.

It makes me think of a simpsons episode from a while back “Hey xxxx, remember last week when I paid back that loan? Well now I want YOU to do a favour for ME” 🙂

What percentage of loans does the government assume will not be repaid? If the student loan “books” are to be balanced, this amount must presumably be repaid in interest or fees from the students whose degrees actually help them to get a well-paid job. It’s a topsy-turvy system that “rewards” people for doing courses which they don’t need for a well-paid job, and penalises those whose careers support society, eg the medics, lawyers, engineers, accountants, scientists, teachers etc by making them pay for themselves and a proportion of the others.