Asked by Lord Hunt of Kings Heath To ask Her Majesty’s
Government whether they plan to reduce the 6.1% rate of interest to
be charged on student loan debt from September 2017; and if so,
how. Viscount Younger of Leckie (Con) My Lords, student loan
interest rates vary with income: 6.1% is the maximum rate, and many
students will be charged...Request free
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Asked by
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To ask Her Majesty’s Government whether they plan to reduce
the 6.1% rate of interest to be charged on student loan
debt from September 2017; and if so, how.
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(Con)
My Lords, student loan interest rates vary with income:
6.1% is the maximum rate, and many students will be charged
less than this. Borrowers in repayment who earn under
£21,000 pay 3.1%. Borrowers are protected, and repayments
are linked to income, not interest rates or the amount
borrowed. Our student finance system ensures the costs are
split fairly between graduates and the taxpayer, and does
this while helping more young people to go into higher
education than ever before.
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(Lab)
My Lords, the noble Viscount failed to mention that the
moment a student gets to university, the 6.1% rate applies
to them. At the end of three years, it has been estimated
that the average interest added, at 6.1%, will be £5,800.
Why are the Government determined to put students into even
more debt than they are now? Why is RPI being used as the
rate of inflation when the Government themselves have
rejected RPI when it comes to benefits and pensions?
Indeed, it is only students and railway passengers who are
penalised by the use of RPI. When will the Government get
real and review the rate of interest, as a first stage
towards reform of our university fee system?
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My Lords, the details of the scheme continue to be kept
under review, but the student loan system is working well.
The Government’s reforms to the undergraduate student
finance system have ensured that it is financially
sustainable for the taxpayer in the long term, while
enabling those with the talent to benefit from a higher
education to do so. Young people from the poorest areas are
43% more likely to go to university than they were in
2009-10. This is a very good step in the right direction.
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(Con)
My Lords, can my noble friend explain why the Government
cut the discount rate—their own measure of the liability
for the public—arguing that they were able to borrow money
more cheaply, and at the same time hugely increased the
interest rate that students have to pay? Given that
three-quarters of students do not pay their student loan
back in full, those who do will be paying back several
times what they actually borrowed.
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The interest rate system ends up being a subsidy. If we think
of one-third of students going to university, a third is
written off. The whole complex system is designed to ensure
there is an effective balance.
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(CB)
My Lords, could the Minister explain how we have got to a
position whereby once graduates earn over £21,000, they
effectively face a marginal tax rate of 41% after loan
repayments are included, irrespective of any rise in the
interest rates being charged?
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To answer the question about the £21,000, the issue was
discussed at length during the passage of the Higher
Education and Research Bill. When the current system was
introduced, the threshold would have been around 75% of the
projected average earnings for 2016. Since then, updated
calculations based on ONS figures show the figure is now 83%,
reflecting weaker than expected earnings.
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(Lab)
My Lords, what is the Government’s estimate of the average
debt of a graduate on leaving university?
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I have those figures but I will have to write to the noble
and learned Lord with them; they are in my facts somewhere.
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(LD)
My Lords, when student loans were introduced by the
Government, students were promised that the threshold of
£21,000 would increase in line with average earnings. Why has
that commitment not been delivered?
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That is because it is not necessary to do so. The proportion
of borrowers liable to repay when the £21,000 threshold took
effect in April was significantly lower than could have been
envisaged when the policy was introduced. The threshold would
now be set at £19,000 if it were to reflect the same ratio of
average earnings.
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(Lab)
My Lords, does the Minister think there are any
circumstances—
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(Con)
My Lords—
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The Minister of State, Ministry of Defence (Earl Howe)
(Con)
My Lords, I think it is the turn of the Conservative Benches,
but I hope we can also fit in a question from the noble Lord,
.
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I thank my noble friend. Is there any merit, while the
Minister is reviewing interest rates, in giving consideration
to CPI, which of course is lower than RPI?
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We believe that RPI is more appropriate than CPI for student
loans. It takes account, among other things, of changes in
mortgage interest payments and council tax, which, I may say,
are typical expenses for graduates that are not included in
the calculation of CPI.
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My Lords, I am not sure about reforming universities but I
certainly think we should reform the way in which we conduct
Question Time in this House.
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Noble Lords
Oh!
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Does the Minister think it justifiable for any
vice-chancellor to be paid more than £300,000 a year?
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I made the position clear on vice-chancellors’ pay the other
day in the House. Although the Government do not wish to
interfere, my colleague in the other place, , has made it quite clear
that universities must have restraint in the pay offered to
vice-chancellors and, indeed, to other senior positions.
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of Dalston (CB)
My Lords, if we could come back to the Question, it was
reported at the weekend that Mrs May was casting around for
ways to ease the burdens on students. Would an obvious way of
doing that not be to reduce interest rates to something more
like the rates that banks were paying to investors?
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There have been rumours in the press about a review but I
cannot really confirm that at all. We believe the balance is
right between making sure that the interest rates are right
and that we encourage people to go to university.
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(Con)
My Lords, when we introduced student loans back in the 1980s,
we did so because the Treasury would not accept a student
tax. It would be a much better way of dealing with this
problem because it is not strictly a loan; it is a lump of
government expenditure that is passed from the Department for
Education to a student, who then passes it on to the
university. That is the amount that I believe a student
should pay without any interest at all, and that is what
would happen if we had a student tax in this country.
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I note the fact that the noble Lord has raised.
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