UK Politics

Student loans face timebomb, says Labour

Graduate Image copyright PA
Image caption Graduates do not have to repay fees until they earn £21,000 under the new system

The coalition is facing a student loans repayment "timebomb" which could prove electorally "catastrophic" for the Liberal Democrats, Labour has warned.

The government has said this week about 45% of university graduates would not earn enough to repay loans.

Shadow business secretary Chuka Umunna told the BBC raising fees in England to £9,000 a year might end up costing taxpayers more than the old system.

But Treasury minister Danny Alexander said numbers "move around a lot".

Under the new system, students do not pay the fees upfront and only start repaying when they are earning at least £21,000 a year.

If the proportion of graduates not doing so reaches 48.6%, experts calculate that the government will lose more money than it gained by increasing fees in England to £9,000 a year.

'Already exploding'

Mr Umunna told BBC One's Andrew Marr Show: "I think this is actually catastrophic, for the Liberal Democrats in particular, because having trebled tuition fees in the name of reducing the deficit and saving the exchequer money, you are are at best seeing it raise little money at all; at worst actually costing more.

"What this is is a student loan time bomb that is actually already exploding under the government."

The Liberal Democrat leadership backed the rise in fees, despite a general election manifesto commitment not to do so.

The party says this was necessary, as part of a coalition with the Conservatives, to help deal with the budget deficit left by the last Labour government and to provide a financially stable future for higher education.

Mr Alexander, himself a Liberal Democrat, told the Andrew Marr Show the figures were based on projections of what might happen to graduate incomes in 35 years' time, "so these numbers do move around a lot".

He also said: "The figure that we are most pleased with is that we are seeing more people from disadvantaged backgrounds going into higher education than ever before."

'Bounce around'

He said changes under the coalition had "enabled universities to be financially sustainable".

Image caption Mr Willetts said the current system was more sustainable than its predecessor

Universities minister David Willetts rejected calls for the £21,000 threshold to be lowered to increase the amount of money recouped, saying we "do not have to take those types of decisions".

"I think this is a sustainable system," he told Channel 4 News. "It is a far more sustainable system than any alternative.

"The people who want to return to the old system are saying we should write off 100% of the money and hand over grants to universities in the old way."

He added: "The exact forecasts will bounce around depending on exactly what people are forecasting for earnings 35 years out... I can envisage in the future. if graduate earnings pick up and rise more than forecast, that the amount we are going to collect back will improve."

'Tipping point'

Economics consultancy London Economics said the "tipping point" at which the costs of the new system would exceed those of the old one would be reached if 48.6% of all student loans were not repaid.

The estimates have been calculated to take account of the change to higher education funding in 2012-13, when universities in England were allowed almost to triple yearly fees to £9,000.

The rules are different elsewhere in the UK. Students from Northern Ireland who also study there will pay a maximum of £3,685 in 2014-15, while Scottish students pay no fees if they study in Scotland.

But students from Scotland or Northern Ireland can be charged up to £9,000 if they study elsewhere in the UK, and the same is true for students from elsewhere in the UK studying in Northern Ireland or Scotland.

Students in Wales pay a maximum of £3,685 towards their tuition, regardless of where they study in the UK, with the remainder of the fee covered by a grant funded by the Welsh government and local authorities.

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