Wednesday, 13 October 2010

Rich graduates shouldn't be able to pay student loans early

As I wrote yesterday, Vince Cable and Nick Clegg are desperately trying to find some sort of compromise solution that will induce Liberal Democrat backbenchers at the very least to abstain on a higher education funding vote.

Dr Cable's courageous statement in the Commons yesterday afternoon has made Lord Browne's report nominal Government policy.  Considering the political U-turn that the Business Secretary (and fellow Lib-Dem ministers) have had to make, this was no small feat.

Yet still his party is teetering on the abyss as MPs are torn between their (unrealistic) pre-election pledge and the realities of Government and our economic situation.

The progressive graduate contribution that has appeared vital to any Lib-Dem approval is there in Lord Browne's report, in the form of tiered interest rates variable by future income.  It appears, however, that this is not going to be enough.

It seems that Vince Cable wants to include a provision that prohibits wealthier graduates from paying off their student loans earlier or in one go (thus earning a discount in terms of long-term interest unpaid).

According to the Times (£) this morning, some Conservative MPs are alarmed at such a thought and some in the media have branded it ludicrously unfair.

But is it?  I have a mortgage on my house and my mortgage provider will fine me if I try to pay off my loan early.  The difference between a bank selling mortgages and the Government offering student loans is that the former has a profit motive, I understand that.  Yet why should the Government relinquish revenue from exactly the group of wealthier students that the progressive interest rate policy is meant to target?

There is nothing unfair about what Dr Cable is suggesting and, frankly, if it comes to be the price paid for Liberal Democrat abstentions then dissatisfied Conservative MPs should take it on the chin.

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