The Government is due to undertake a major review of university
funding and student financing. In its unanimously-agreed Report
on Student Loans, the Treasury Committee has made a series of
recommendations, which the Government should address as part of
its review.
- Interest
rates
-
Justification for high interest rates on student loans is
questionable
-
Above-inflation rate on tuition fee loans whilst student is
studying should be reconsidered
- Abandon
use of RPI in favour of CPI to calculate interest rates
- Assess the
case for re-introducing maintenance grants
- Explain why
the higher than expected level of tuition fees are desirable
- Simplify the
system to ensure that student finance is better communicated
-
Fundamentally rethink offer to part-time students as numbers have
declined sharply
-
Sharia-compliant student loans should be introduced as soon as
possible
On the impact of student loans on the public finances,
the Report concludes:
- £6-7 billion
of annual student loan write-offs are hidden from the deficit
- Over £6
billion could be written off through the sale of £12 billion of
student loans over the next five years
Recommendations for the Government to consider as part of
its review
Interest Rates
- The Government
has argued that the interest rates on student loans are
progressive. However, graduates with very large salaries may in
reality pay less over their lifetime than lower-earning graduates
as they can repay the loan quicker, and therefore pay less
interest. The Committee has not heard a persuasive explanation
for why student loan interest rates should exceed those
prevailing in the market, the Government’s own cost of borrowing,
and the rate of inflation.
- The
Government has justified high interest rates being applied to
loans whilst students are still at university as it prevents the
loan from being invested, even though tuition fee loans are paid
directly to the university. The Government should reconsider the
punitive measures of charging positive real interest rates whilst
students are still at university.
- RPI was
de-designated as a National Statistic, and it has been roundly
criticised as a flawed measure of inflation. The Government
should abandon the use of RPI to calculate student loan interest
rates in favour of CPI.
Maintenance Loans and Grants
- The
Government has said that maintenance loans are not intended to
cover a student’s living costs in their entirety. Therefore,
students who lack access to additional sources of income, such as
through parental contributions, can be priced out of a university
education. This is at odds with the Government’s aim of removing
barriers to access, and the Government should address this by,
amongst other things, assessing the case for the re-introduction
of maintenance grants.
Tuition Fees
- The
incentives for students to choose courses that command smaller
tuition fees are weak. The Government naïvely assumed that in
advance of the 2012 reform to tuition fees, which increased the
cap to £9,000, prevailing tuition fees would be around £7,500.
Tuition fees are almost universally at the increased cap of
£9,250, so the Government should explain why the higher levels of
fees are desirable.
Communication
- Student loan
debt is only repaid when earnings surpass a given threshold, and
it’s written off after a defined number of years. It shouldn’t be
thought of as a typical debt, and terms such as ‘loan’ and ‘debt’
could serve as deterrents for young people considering applying
to university. The Government should review how to simplify the
system to ensure that student finance is more understandable.
Part-time Students
- Between
2008-09 and 2015-16, the number of part time students fell by 47
per cent, from 590,000 to just over 310,000. This sharp decline –
brought about in part by the 2012 reforms – is regrettable. The
Government’s review should include a fundamental rethink of its
offer to part-time students. It should ensure that part-time
study is a credible option as part of lifelong learning and
retraining, and that it provides access to higher education for
those who are unable to study full-time.
Alternative Student Finance
- Student
loans are subject to a positive real interest rate, meaning they
are not Sharia-compliant, which could deter some prospective
students from participation in higher education for religious
reasons. The Government should make use of Islamic Finance
expertise both within the Government and externally to ensure
than an alternative finance model is introduced as soon as
possible.
Student loans and public finances
- As student
loans are written off after 30 years, a student loan issued today
will have no impact on the deficit until 2048, even though the
Department for Education (DfE) recognises that a high proportion
of it will never be paid back. This allows the Government to
escape scrutiny. The DfE issued £13.6 billion of student loans in
2016-17, and based on the current RAB charge (the proportion of
student debt that the Government expects to write off) of 40-45
per cent, £6-7 billion of annual write offs are missing from the
deficit – the equivalent of the entire NHS capital budget. Its
inclusion would increase the deficit for 2016-17 by 13 per cent,
from £45.5 billion to over £51 billion.
- The Government sold £3.5 billion of student loans last year
for £1.7 billion, a 51 per cent write off. The Government plans
to sell off a further £12 billion of student loans over the next
five years. If the write-off rate remains the same as the
previous sale, over £6 billion of student loans could be written
off without impacting the deficit.
Commenting on the Report, Rt Hon. MP, Chair of the Treasury
Committee, said:
“The Treasury Committee’s report on student loans has made a
series of recommendations, which the Government should consider
as part of its review of university funding and student
financing.
“The use of high interest rates on student loans is
questionable. The Government has justified it on progressive
grounds, but the Committee remains unconvinced as high-flying
graduates may pay less than graduates on more modest
earnings.
“No other persuasive explanation has been provided for why
student loan interest rates should exceed those prevailing in the
market, the Government’s own cost of borrowing, and the rate of
inflation. The Government must reconsider the use of high
interest rates on student loans as part of its review.
“The Government has said that maintenance loans aren’t
intended to fully cover a student’s living costs. If a student
can’t access additional sources of income, they may be priced out
of university. The Government should assess the case for
re-introducing maintenance grants to help remove barriers to
access for potential students.”
“The Government should also consider how to simplify the
student loan system to ensure that student finance is more
understandable, and why a tuition fee rate higher than it
expected is desirable.”
--Ends--
Notes to Editors
- The Report
embargo lifts at 00:01 on Sunday 18 February 2018.
The report can be accessed on the Treasury Committee’s
website here when the
embargo is lifted. The home page for this inquiry
is here.
- For an
overview of the Committee’s work, including open inquiries, visit
the Treasury Committee website here. Watch
Committee evidence sessions here. Follow the
Treasury Committee on Twitter: @CommonsTreasury
- Committee
membership is as follows: (Chair), , (declared a
non-pecuniary role in relation to this inquiry and declared
that he would take no part in the inquiry), , , , , (joined the Government 9
January 2018 and ceased to attend the Committee from that
date), , and .