UK Student Loan situation – Friday Ramblings

Finally, in April 2019 the total amount I owe to the Student Loans Company (SLC) here in the UK, dropped to below £10,000.

“Hoorah” I hear you say.

Whilst I do feel slightly better about this amount (given that it started at around £23k about 7 years ago) it is nonetheless an incredibly annoying financial burden hanging over me. Don’t get me wrong, this is not a “Woe betide me” piece, it’s more about the arbitrary nature of the interest applied to this debt and the lack of alternative options.

Every month I’m in full time employment and/or earning over the relevant threshold (the link for this can be found at the end of this article) I am paying 9% of this straight to SLC. Of course it is duly right that I pay back the money I have borrowed from the government, therefore ultimately, the taxpayer for an extended education. What I begrudge is the 6.6% interest I pay. 6.6% is actually quite high by way of comparison to other levels of interest on similar debt. Just to be clear here, by the term “Similar” I mean loans provided by the state, or other sources such as a credit union.

Student Loans are an unsecured form of debt, which in and of itself isn’t a problem… given that it’s taken at source as opposed to an individual proactively having to pay it off through, for example, a direct debit.  However, it doesn’t, at least to me, logically follow that 6.6% would be an appropriate or reasonable rate of interest to apply. Given that I have no choice through what mechanism I pay this money back to SLC, that there are no alternative payment plans, no customer service provided from SLC (honestly – they are shocking) both over the phone and via email, I am unsure as to why the figure 6.6% is levied. More than anything though this to me has always felt like a legitimate market failure in that SLC has a monopoly position on the provision of student loans as a financial product.

Now, I appreciate that the market has not stepped in for the obvious reason that it probably wouldn’t be able to make any profit on said products given that the time period over which the typical student loan is paid back is well over 20 years (the loan expires after 30 years). However this just adds credence to the argument that the SLC through the levying of an arbitrary 6.6% is, in my view, abusing it’s dominant market position. Nor can I realistically use an alternative provider, because unless you have a guarantor, no provider would provide you with such a financial product.

Ultimately, the SLC, through their monopoly in the market for this product, has no incentive to provide us with any genuine buyer-supplier relationship, creating the obvious asymmetry of information in both the relationship and the provision of the product in hand.  There is unlikely to be any correction of this either, put simply, why would there be?

Without said correction, and the SLC being in their monopolistic position we, the consumer, lose out. Odd really, since the SLC is taxpayer funded, whereas in typical scenarios the shareholders may at least gain, in this case, all of us lose.

Happy Friday.

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