Education & Family

Student loans review unnecessary, says government

Graduation ceremony Image copyright Chris Ison
Image caption Students in England, Wales and Northern Ireland can take out government-funded loans to cover tuition fees

The government has refused to hold an "urgent" review of the student finance system which is predicted to be carrying £330bn in loan debts by 2044.

The Commons Business, Innovation and Skills (Bis) Committee said the UK was reaching a "tipping point" for the loan system's financial viability.

It had called for an urgent review of the system's sustainability, and says it is "alarming" this has been refused.

The government insists there is "no immediate pressure" on the system.

Currently students can take out government-funded loans to cover tuition fees, which cost up to £9,000 a year.

Students from England and Wales pay back their tuition fee loans once they earn £21,000 a year; in Northern Ireland, they pay back once they earn £15,795 a year. Scottish students who study in Scotland do not pay tuition fees.

The debt is written off after 30 years.

In its response to the committee's third report on student loans, the government said its finance system was a "long-term investment in the skills of the nation".

'Fluctuations'

It said: "The government has no current plans to initiate a formal review of the sustainability of the student loans system in England.

"Indeed the OECD's director for education and skills, Andreas Schleicher, considers that we are the first European country to have established a sustainable higher education system.

"The government is committed to supporting the growth of high quality HE provision in England, ensuring it remains free at the point of access."

It added that the costs of the loan system were based on projections of graduate repayments over the next 35 years.

"These projections were revised in 2013-14 following changes to the student loan repayments model, but will continue to fluctuate due to numerous macroeconomic variables, and present no immediate pressure on the system."

However, committee chairman Labour MP Adrian Bailey says outstanding student debts are predicted to increase to more than £330bn by 2044.

'Significant debt'

"With the prospect of a large potential black hole in the government's budget figures, it is all the more alarming that the government has refused to conduct a review of the current student loan system," he said.

"A review would offer the opportunity to assess the viability of the existing system before we stumble blindly into an unfunded student loans model which would leave students, universities, and taxpayers with a very raw deal indeed."

The committee also said students deserved clarity about the terms and conditions of their loans.

While there is no indication of any imminent changes to the terms of student loans, it pointed out that ministers have retained the power to change the "T&Cs" without any scrutiny or approval from MPs.

Mr Bailey said it was disappointing that the government had rejected recommendations that changes to student loan terms and conditions be subject to parliamentary approval.

"It will also come as a shock to students that the government apparently believes it could hike up the interest rate of their loans without this constituting a change in the T&Cs," he said.

'Worrying complacency'

He urged the government to reconsider this, saying parliamentary approval of any future changes "would give a degree of reassurance and clarity to students taking on significant debt".

The proportion of graduates failing to pay back student loans is increasing at such a rate that the Treasury is approaching the point at which it will get zero financial reward from the government's policy of tripling tuition fees to £9,000 a year. The threshold at which experts calculate that the government will lose more money than it would have saved by keeping the old £3,000 tuition fee system is 48.6%.

The National Union of Students said the government's response to the report exhibited "worrying complacency."

It added: "The proportion of graduates failing to pay back student loans is increasing at such a rate that the Treasury is approaching the point at which it will get zero financial reward from the government's policy of tripling tuition fees to £9,000 a year.

"The threshold at which experts calculate that the government will lose more money than it would have saved by keeping the old £3,000 tuition fee system is 48.6%.

"Official forecasts suggested that the write-off costs for student loans had reached 45% of the £10bn in student loans made each year."

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