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The Difference Between the UK and US Student Loan Systems

British students acquire far less debt than most of their American counterparts, and paying it off is generally a lot simpler.

Students protesting against fees in London. Photo by Adam Barnett

A version of this article first appeared on VICE UK.

Thousands of students in the UK are currently coming to from their dissertation-based stupor, waking up to a lifetime of loan repayments. If they did a three-year degree, they belong to the first batch of graduates potentially saddled with up to £27,000 ($42,000) of debt, thanks to the coalition decision in 2010 to allow universities to charge a maximum of £9,000 ($14,000) a year in tuition fees. What they have to pay back is nothing like the colossal, life-changing debt of American students, but compared to the carefree British graduates of 2014, they're fucked.

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I wanted to know whether they could just sack it all off in return for never being able to get a credit card—which, in the long run, probably isn't such a bad thing anyway. To find out I called Nick Hillman, director of the Higher Education Policy Institute, the only think tank in the UK that specializes in higher education. He was also, as you may discover in furious comments underneath this article, Chief of Staff to former Tory Minister for Universities David Willetts from 2010 to 2013.

We spoke about whether an American-style mass default is even possible in the UK, and, if not, if the future for student loans is as bleak as it often looks.

A man shouting, presumably about tuition fees. Photo by Adam Barnett

VICE: So, firstly, what would be the consequences of everyone in the UK just defaulting on their loans?
Nick Hillman: I read the story you sent over from America, and I've read the New York Times piece over the week, and the first thing to say is it's not an easy thing to do. It's much easier in America than it is here, because the standard way of collecting student loans back in Britain is through the payroll. So, basically, anyone who's not self-employed never actually writes a check to the student loan company—the money just comes off their pay packet, a bit like income tax, before they ever see it, and the employer pays the student loan company and the government. So it's a lot harder to do.

There are people who could do it: Self-employed people could do it. But the difficulty is the parameters of the loan system are very different here to in the States. One is that they have that very efficient collection mechanism, which isn't a regular feature in America, and the second is that, actually, our repayment service is quite generous—you don't start repaying your student loan here until you've got a job that's earning at least £21,000 [about $33,000] per year, which is a lot higher than the States. Even then, you only pay 9 percent of your money above £21,000.

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The other problem is that people who are in low-paid work are not paying their loans back anyway. So I suppose you could say they're defaulting, but it's the way the system works, so they're allowed to default. So I don't think there's a direct parallel to America.

I think where there might be a parallel is that students don't seem that bothered about getting into debt. So when tuition fees went up to £9,000, there were opinion polls that suggested everyone would stop going to university, and they didn't. They went to university in very significant numbers. In fact, we have more full-time students than ever before.

What I think will happen is, fast-forward 15 or 20 years… let's say there's a general election in 2030 and lots of graduates—everyone who's been to university between 2012 and 2030, basically—who are working in the labor market with very large student loans and actually no way to default on them. Except that there is one way to default on them: elect a government that promises to wipe them out. I think that the same way Margaret Thatcher found reducing income tax a very powerful electoral weapon, I don't think it's inconceivable that, in the future, a populist politician could come along and say, "We'll do something to your student loans." It would feel like a tax cut—people would feel it in their pay packet because the money is taken off by employers before they ever see it. So I think that would be a sort of official way to default, but an individual can't default in Britain the way they can default in America.

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"It's pretty hard to default on your income tax, and it's pretty hard to default on your student loan."

When you start a new job and have to declare your loan status, is there a punishment for falsifying it?
The short answer is: I don't know. But I'm pretty sure the system would eventually catch up with you, because your employer would need to give your National Insurance number to Inland Revenue, and the Inland Revenue talks to the student loans company a lot, and I suspect it wouldn't take long for the Inland Revenue to work out that you're doing this job and you're having your tax deducted and you've also got a big outstanding student loan.

Now, if you move abroad, serious problems arise. One way people get out of repaying their student loans is to move abroad, because although when you move abroad you still owe the money—it's a contractual debt—the British government finds it very hard to track people down to say, "Why aren't you paying your loans?" So people who are really keen to get out of paying could all go and work abroad.

There are probably a few people who do that. That would be another way to avoid paying it. But our student loan repayments feel more like a tax than they do in America. It's pretty hard to default on your income tax, and it's pretty hard to default on your student loan.

We're about to get the first wave of the £9,000 kids graduating. Do you anticipate a movement to re-evaluate how these loans are repaid?
It's probably not the answer you want to hear, but I don't particularly anticipate it in the short-term. By the way, they graduate this summer, but they don't become liable for repayment until next April—so its April 2016 that's the key date. But lots of graduates get jobs at about £20,000 [$31,000] a year, and any graduate on a job of £20,000 a year won't be repaying their student loan, and even if the graduates lucky enough to get a job at, let's say £25,000 [$39,000] a year, they'll only be repaying 9 percent of £4,000, so they're only paying £360 a year, which is not much per week. It's less than £10 a week, isn't it? So that probably won't feel all that painful in the short term.

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Now, it's possible the government will toughen up the repayment terms, and then it will feel a bit more real. The other challenge is whether students would rather many years of low payments, or a small number of years of high payments to get rid of their loan. That's why I say this whole thing here is much harder than in America.

Do you think we're reaching a point where we re-evaluate, if not the fees and the loans, how we value different degrees, and who should be paying back their full loans?
Yes. It's very difficult to do at the moment, because we can guess that someone doing a nursing degree will earn less than someone doing astrophysics, but we don't have good data on it. We know that, on average, people aren't predicted to pay back the whole of their student loan, but we don't know in advance which people they are. That data is slowly being gathered, by the way, so we will know in the future, and then I suspect the debate becomes less, "Who should be paying back their loan?" and more, "Should there be a different tuition fee cap for different subjects?"

Australia has a very similar funding system to our one—they have four different fee caps, so if you're doing Physics or Law, you pay much more than if you're doing History.

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But I guess the funding system already prioritizes subjects that are deemed to have some sort of societal worth?
Well, it prioritizes them in the sense that those students are unlikely to pay back their loans because they're in low-paid work. There is some extra money paid by the government for science subjects, but it's not so much because they're deemed to have societal worth than simply they cost more to teach. If you're teaching Physics, you need a laboratory; if you're teaching Geography, you don't. That's why, in Australia, where they do have different fees, Law, which is very cheap to teach, is expensive, but so are Medicine and Science.

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The other subsidy is that medics still only pay £9,000, whereas some years of the medical degree cost up to £50,000 a year to educate a doctor in their clinical years.

So the challenge with a direct comparison between us and America is that our student loan system—which I'm not pretending for a moment is popular among students, who I'm sure would much rather go to university and not have to pay back that debt—but our student loan system looks very progressive [compared] to America. The radical students in California lobby for a student loan system like ours because ours is much more generous than theirs.

I was on the £3,000 fees, but if I were paying £9,000 a year for my English degree, that would feel pretty expensive. Do you see any signs that prospective students are reconsidering humanities and arts subjects?
Well, I actually think there's a bit less of that going on than the government expected when they tripled tuition fees. You're right—I think students who are on arts degrees with fewer than ten contact hours per week are beginning to ask questions.

The single biggest thing my organization does each year is a big survey of undergraduates, where we ask them, "Are you happy? How hard are you working?" Loads of things, and we do it every year. What it does show is that, as the £9,000 students work their way through the system, they increasingly think they're not getting good value for money. There's not a lot of evidence they're doing much about that in terms of protesting or demanding things from their universities. There's a little bit of evidence, but not much.

One of the other questions we put in our survey, which I think is a really interesting one, is: do you think you get enough information from your university about where your tuition fees go? And 75 percent of students say, "No, we definitely or probably don't know enough." So there's growing demand for more information. But, as I say, students are not being quite as demanding as the government expected when they tripled tuition fees.

But this information would have be given while people are still studying, rather than after the fact, when they're upset about the repayment.
Yeah. One of the problems is that people tend to try to go to the most prestigious university they can go to, and so getting a place at a top Russell Group university is deemed a "good thing" by employers. So when you go for that interview with an employer and they say, "Oh, you've been to a top Russell Group institution…" they don't then say, "And how many hours were you taught at your top Russell Group institution?" They're just impressed that you got a 2:1 or a first from a top Russell Group institution.

So I think it's probably not only students who should be demanding more information and demanding they get value for money. It's also what employers are looking for from graduates, because some employers simply say, "If you've been to a Russell Group university and you've got a 2:1 or a first, you're good enough for us, or good enough to be interviewed by us." And while that happens, there's less incentive for students to demand a lot from their university, because simply having a Russell Group university on your CV is a useful thing.

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