Peter Ainsworth: Young people don’t need cheaper loans. They need jobs.

Peter Ainsworth is Managing Director of CAMROW and the author of Setting Universities Free, How to deliver a sustainable student funding system.

Kemi Badenoch is right that young people are not prospering. Too many struggle to gain a foothold in the labour market, and too many have been encouraged into university courses that do not lead to strong employment outcomes.

But her proposed student-loan reforms have the moral issue the wrong way round.

The central injustice facing this generation is not the interest rate on Plan 2 loans. It is the difficulty of getting that vital first job – with the chance to do real work, develop capability and build confidence.

Employment matters not only economically but psychologically and socially. It teaches reliability, responsibility and judgement in ways classroom learning cannot. When young people cannot get started in work, the damage is not just financial. It is fundamental and life changing.

That is the moral issue Conservatives should focus on.

The misplaced “exploitation” narrative

Badenoch, writing in The Telegraph, describes student loans as a “scam” and says government is “making money off the backs of graduates”. That framing suggests exploitation.

But the reality is more nuanced.

The student-loan system involves substantial taxpayer subsidy through debt forgiveness. Some analysts suggest close to half of lending may ultimately be written off. With around 50 per cent of young people attending university and typical borrowing near £60,000, the arithmetic implies a subsidy cost of roughly £15,000 per young person – i.e. a burden on all, including those who did not go to university.

Before describing graduates as victims, Conservatives should acknowledge that the system already asks those who did not benefit from higher education to help finance those who did. In this context, those who attended university are the relatively privileged group. Expanding the subsidies from which they benefit even further risks exacerbating rather than correcting an injustice.

Badenoch’s proposed interest rate cut would mainly benefit middle earners – those on roughly £50,000 to £70,000. This makes it even harder to justify around £2 billion of additional subsidy to this group when nearly a million young people, including many graduates, are NEET: not in employment, education or training.

Taxes fall most heavily on those priced out of work

There is also a misconception about who bears tax burdens.

Policies that raise the cost of hiring – higher employer National Insurance, elevated minimum wages and regulatory risk – fall most heavily on those priced out of employment altogether. On paper they pay no tax. In reality they bear the heaviest burden of all: exclusion from work itself.

Even “safe” degrees cannot eliminate uncertainty

In both the United States and the United Kingdom, entry-level hiring in technology roles has weakened recently. Computer science graduates in particular have reported unusually high unemployment rates relative to other disciplines. The lesson is not that STEM lacks value. It is that no field of study can guarantee outcomes in a dynamic economy.

This has important implications for policy. Farage’s Reform proposes a greater focus on STEM while Badenoch endorses college-sponsored “apprenticeships”. Both assume politicians can reliably predict which courses will deliver the best outcomes.

Experience shows they cannot.

A Conservative reform: align incentives

If Conservatives want to address low-value courses, the solution is not to change interest rates or for politicians to anticipate the labour market. It is to change who carries the risk associated with career outcomes.

The state should no longer issue student loans. The current system insulates institutions from responsibility for what they deliver. Universities should instead provide the financing, alongside regulated financial partners, so that they have a meaningful financial stake in the employment outcomes of their students.

When incentives align, behaviour changes rapidly. Courses would be designed around employability, work experience and real demand because institutional survival would depend on it.

The real priority: open the labour market

The most urgent reform for young people – graduates and non-graduates alike – is access to the first step on the employment ladder. Without it, later progression becomes far harder.

Ending state student loans would reduce government borrowing by around £10 billion a year. Those resources could be used more effectively to reduce the National Insurance burden on young employees and their employers. Many businesses are willing to take chances on inexperienced workers, to teach and mentor them. But successive increases in employment taxes and regulatory costs have made those opportunities too expensive to provide.

Cutting these employment taxes is the most reliable way to complete the education of young people – through a real job opportunity.

The unfairness facing young people today is not student-loan interest.

It is being locked out of the first rung of the ladder of a fulfilled life.

Fixing that should be the moral priority of Conservative policy.