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Student support review #5: changes to loan scheme – welcome, but there’s a dislocation between claims and evidence

November 22, 2017

The review of student funding was asked to look at changes to the student loan scheme in Scotland.

Its recommendations are:

  • an increase in the loan repayment threshold to £22,000. But it adds “The Scottish Government should consider increasing this to £25,000 based on current proposals in England. This additional increase would cost around £27m per year.”
  • remaining on the current Plan 1 interest rate (lowest of RPI, or 1% over base rate)
  • reducing the period after which debts are written off to 30 years.

These are all welcome steps, very much in line with suggestions which have been floating round in Scotland for some time (here are mine from more than three years ago): all parties but the Greens promised a higher threshold and short write-off period at the last Holyrood elections.

Specifically, the recommendations do not go beyond what was in the SNP manifesto and translated into the current Programme for Government. The only difference is that it is not specific about the timing of the introducing the new threshold, which in PfG and the manifesto was described as being achieved by the end of the current Parliament (2021).

The review makes one new loan-related suggestion, which is to write-off its suggested new FE living cost loans if students move into HE.

Thus the added value of the review to this process has been limited, given this is largely existing policy. But it is useful to have the £27m estimate: I am surprised it is so low, but that may reflect that fewer students here borrow large enough amounts for write-offs to come into play.

Comparative claiming

The review claims that:

should our recommendations be implemented, student loans in Scotland would offer the best terms that are available anywhere in the United Kingdom. (emphasis added)

In similar vein the report says elsewhere that

the Board took a fresh look at the terms of student loans available in Scotland, and worked on enhancements that can be made to ensure that students in Scotland can be offered the best lending terms that are available anywhere in the United Kingdom  (emphasis added)

At Monday’s launch, Scotland having the best loan scheme in the UK was a strong theme. The lower interest rate than England or Wales was quoted several times: this seems to have strongly captured the imagination of the review.  The review does not acknowledge the findings of bodies such as the IFS or economists like Nicholas Barr that interest rate subsidies are most helpful to the highest earners.  But that perhaps is reasonable, given that even with higher borrowing levels the review proposes, more people will continue to fall within the range where their loans are likely to be repaid in full, compared to south of the border.

The argument about loan terms

The report argues the combined effect of the system changes above and lower total amounts of borrowing in Scotland in the absence of fees justify this claim.  However, there is a difficulty with including the last of these. “Terms” (especially “lending terms”) has a specific meaning in relation to loans, of any kind: it refers to the rules under which repayments are calculated, irrespective of the amount borrowed.

Existing terms

The report goes further at one point and claims “Loan terms will remain the best in the United Kingdom” (page 32, emphasis added). But Scotland clearly does not currently have the best loan terms in the UK.

The table at the foot of this post shows that Scotland at present has a combination of the lowest repayment threshold and longest repayment period of any UK nation. At minimum, it logically has to be worse at present than Northern Ireland, which has the same threshold and interest, but writes off sooner.

So “Loan terms will remain the best in the United Kingdom”? You can’t remain being what you aren’t already.  An independent review should not be suggesting what is not true.

Future repayment terms compared

Here the “best in UK” claim needs back-up that the report does not provide.

The comparison with Northern Ireland is easy: Scotland would now be the same for interest and write-off period, but with a higher repayment threshold. Definitely better terms.

The comparison with England and Wales however relies on the trade-off between the impact of a lower interest rate (mostly, but not always, see footnote below) in Scotland against starting repayment £3,000 sooner. Welsh graduates will also have the first £1,500 of the loan written off when they start repayments, which takes a lot of the edge off the extra interest acquired over the period of study. For lower earning graduates, the English or Welsh systems could still be better.  To make the “best” loan terms claim stand up, you need to do some modelling to prove your statement. But none is provided. It is my understanding none has been done.

Most crudely, someone who spends their working life earning more than £22,000 and less than £25,000 would be unambiguously better off in England or Wales. That’s too specific an example to rebut the whole claim: but we need to know how the threshold interacts with the interest rate across earnings deciles more generally for the “best terms” claim to mean anything.  Ideally, the models would be compared using a number of different notional initial debt amounts, to check how sensitive the general comparison is to the total amount borrowed.

In other words, the report makes an assertion for which it fails to provide the necessary evidence. Indeed, it is not clear that the authors realise they need to produce this sort of evidence to back up this sort of assertion.

How about total repayments?

Even if including differences in total debt levels is a red herring in the comparison of repayment terms, it would of course be relevant to a comparison of actual total repayments. It would be a different point, but a perfectly valid one to make.

Again, this claim still needs detailed comparative modelling of the repayments associated with expected borrowing under each scheme. Averages are not very helpful, as there will be so much variation round them by income. So the obvious thing to do would be to compare each system a number of times, using the anticipated final debt for a range of comparable students, from different incomes and therefore with different support packages. An issue here is that though annual borrowing will generally still be lower in Scotland, degrees here are generally a year longer, and in comparing graduates’ likely total repayments it would be artificial to ignore that. For those from low incomes final debt for an honours degree could be very similar in Scotland and Wales: for them, the combined threshold/interest rate trade-off will be the deciding component.

Putting it all together, the review’s recommended option might still mean that Scottish honours graduates who started from low incomes would consistently face lower total lifetime repayments than their English, Welsh and NI counterparts,  but it’s not self-evident. I’ve not even mentioned yet Scottish Parliament modelling in 2013 which showed how, at that point, differences in the loan terms (conventional linguistic usage), including Scotland’s lower threshold, meant the lowest earning Scottish graduates could end up paying back more equivalents from England who had borrowed more than twice as much. Loan repayment comparisons are complicated things.

In other words, to make a robust comparative claim about the combined effect of total debt and new repayment terms needs … proper modelling. And again none is offered and it is my understanding none has been done. At the moment all we have is an unproved assertion.


The apparent muddle between loan terms and total repayments is unhelpful. But my understanding may be wrong, and the review may have seen analysis which backs up it comparative claim in relation to either (though it is plain wrong about the status quo). However, it then needs to show its workings (it still could, of course).  Or it may have jumped to conclusions without having commissioned the necessary analysis: that would be something worse.  It would mean a high-profile claim of the review was built on the sand of an untested assumption of superiority.

There were already signs (see here) from the handling of the launch that review members may be susceptible to falling into a “Scotland The Best” trap – the assumption that one prominent difference in Scotland’s favour simply must mean it is generally better than everyone else at the whole of something.  The one part of the review report where it makes a superiority claim about a specific element of student funding was an opportunity to reassure on this point. But close reading of that section fails to provide that reassurance.



Table:  Current and proposed loan terms in the UK


Scotland now Scotland proposed England and Wales now England and Wales proposed NI now (no changes publicly proposed)
Interest Lowest of RPI or 1% above the BoE rate RPI plus 3% while studying.

After leaving, variable rate dependent upon income.

RPI where income is below repayment threshold.

Rises on a sliding scale up to RPI plus 3% where income is £41,000 or more

As Scotland
Unpaid debt written off after 35 30 30 30 30
Repayment threshold 17,775 22,000 21,000 25,000 17,775




For those earning below the repayment threshold used in England or Wales (£25,000 from next year), the interest is RPI. For Scottish and Northern Irish ex-students the interest rate is RPI unless the bank base rate falls to more than 1% below that. In that case (as now: when the 2017-18 rates were set, the base rate was 0.25%, RPI 3.1%) interest is lower for Scots and the Northern Irish. But if the base rate and RPI become closer again, low earning English and Welsh students could be on the same interest rate as Scots and the Northern Irish. There is not a guaranteed lower rate for the latter groups.



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