Theresa May’s speech in Derby, announcing a review of student loans, preempted potential fallout from the EU after a University of Derby student took the fight on student loans to the EU Commission.
David Gale, a mature law student, secured a statement from the EU Commission that UK student loans will breach European Law unless they are offered on more favourable terms or at interest rates lower than those available to the general public.
Gale lodged a formal legal petition with the EU Parliament in February 2017 to challenge the UK government’s implementation of a 2008 EU Directive that stripped all consumer credit protection from student loans. In December 2017, the EU Commission responded:
“National authorities should [in any event] monitor these loans to ensure that they continue to meet the conditions allowing their exclusion from the scope of Directive 2008/48/EC, in particular that these student loans are granted at lower interest rates than those prevailing on the market, or on other terms which are more favourable to the consumer than those prevailing on the market and at interest rates not higher than those prevailing on the market.
Member States could also decide to maintain or introduce national legislation corresponding to the provisions of Directive 2008/48/EC or certain of its provisions to credit agreements outside the scope of this Directive, such as the student loans mentioned by the petitioner.”
In 2018, Gale took his fight to the House of Lords, providing evidence to the Economic Affairs Committee. Gale told the committee: “UK student loans do not meet the conditions required to allow their exclusion from the scope of Directive 2008/48/EC. In fact, the compound interest levied on UK student loans means that they are in breach of EU Law.”
Estelle Clarke, a top City lawyer, agrees that the impact of compound interest is hidden when student loans are sold. Clarke told the Independent newspaper: “Students are being taken for a ride with their student financing. In the UK, laws of Equity protect people from being exploited by “unconscionable” agreements like these.”
Gale said, “The timing, content and location of the Prime Minister’s speech in Derby indicate that the Prime Minister has been briefed to make a public statement that gets ahead of the ruling from the EU Commission that requires governments to monitor the terms and conditions of student loans. If the Prime Minister gets the job done on student loans and changes the current focus on selling off the £60 billion student loan pot to investment bankers, I’ll call that a result.”
A transcript of Gale’s legal submissions and the EU Commission’s response is available here