Students to Face Even Higher Interest Rate Charges After RPI Increase
20th Apr 2018
Following the removal of the cap on student numbers -that should see an incremental 60,000 students enter the UK's higher education system each year- MPs have warned that there is no clear funding strategy to cover the cost of the policy.
According to a report by the Business, Innovation and Skills Select Committee, the current student loan system is, in its current form, unsustainable. The report lambasts the Government for its forecasting of future debt and the seemingly inept approach taken in calculating the recoverability of student loans. Citing independent forecasters who have recommended improvements to the government's methodoloy for many years, the report suggests a full review of the student loan system and highlights the need for the Government to set out clearly where and how it will raise the £5.55 billion required to fund the policy for the next five years, which could scale to £330 billion by 2044.
Under the current structure, students only commence repayment of their loans once they are earning in excess of £21,000 per annum, with any outstanding debt related to the initial loan written off after 30 years. Therefore, as a result of the favourable terms and conditions offered to students, it is estimated that only 55% of the loan is ever recovered, a much lower level than the 72% recoverability predicted by government.
Despite George Osborne's announcement in last year's Autumn statement that extra student places would be funded by the sale the student loan-book, the BIS committee warned that in addition to the demand for student loan assets being untested, it was unclear as to whether or not the sale would in fact represent value for money for the taxpayer; unless the government is able to compensate investors for below-inflation yields, the sale may only raise a small fraction of the £12bn government target. This news comes at a time of increasing panic within the Russell Group, who worry that unless a robust funding solution is found to plug the £5.55 billion black-hole, funds could be redirected from high-cost research-intensive institutions to cover the costs of students entering the bottom of the system.
Image courtecy of Flickr, Creative Commons
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