British student loans at tipping point
The British government subsidises higher education in England by offering a specified number of students guaranteed access to loans with favourable terms and conditions. At present, students do not have to start making any repayments on their loans until they are out of higher education and are earning above £21,000 a year. These loans are time limited and any outstanding debt is written off after 30 years. By providing favourable terms and conditions on student loans, the Government loses around 45p on every £1 it loans out, the committee writes.
The Report highlights a number of weaknesses in the management of this key financial commitment and we are concerned that Government is rapidly approaching a tipping point for the financial viability of the student loans system.
“Start listening now”
“Forecasting future debt is vital to managing the public finances. Under this approach, the Government estimates how much it will lose on a student loan at the point it pays out. Our Report uncovers a worrying record of miscalculation of the Department’s estimate of the RAB charge. More disturbing, is the fact that independent forecasters have been recommending improvements to the Government’s methodology for some years, which the Department has ignored. We recommend that it starts to listen now. The size of this problem is put into stark relief by the fact that the Minister estimates that the size of outstanding debt will increase sevenfold to more than £330 billion by 2044.”
“The Government is already struggling to collect student loans effectively. We therefore recommended an urgent review of the sustainability of the student loan system. As part of that review, the Government would do well to look abroad for examples of best practice and must come back with a clear timescale for this review. The student loan-book is an asset that may be sold for financial gain to the public purse.”
Significant financial windfall
“This was done with the mortgage-style student loan-books of the 1990s. The Government has now announced its intention to sell the more recent income-contingent student loans. This could bring a significant financial windfall to the public purse. However, we conclude that the BIS Department has yet to prove that it has sufficient evidence to judge whether or not selling these assets represents good value for money. We recommend that before any sale, the Government demonstrates the costs of the sale, as well as benefits, so that full value-for-money may be assessed.”
“In the most recent Autumn Statement, the Chancellor of the Exchequer announced the removal of the cap on student numbers. There is agreement that the principle behind the removal of the student numbers cap is a worthy aspiration. The Government’s announcement that the cap will be removed appears to be based on a policy to fund the cost of this through sales of income-contingent student loans. Given the uncertainty around the amount the Government could realise from the sale of income-contingent student loans, it is vital that the Government sets out clearly where and how it will raise the £5.55 billion required to fund this policy for the next five years.”
