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Student Loans to Increase UK's Deficit

Posted by Richard Ward in ,

Image courtesy of Flickr, Creative Commons

A change in how student loans are accounted for could place further pressure on government to lower the cost of tuition fees.

An extra £12bn will be added to the deficit after the Office for National Statistics ruled that unpaid loans should be classified as public spending.

Student loans will now equate to a substantial proportion of the UK's deficit, incentivising government to reduce tuition fees.

Chair of the Treasury select committee and former education secretary, Nicky Morgan, welcomed the ruling. She suggested the current system lacked scrutiny, with the government able to "spend billions of pounds of public money without any negative impact on its deficit target."

Although the change is only a technicality for now, government may be tempted to lower tuition fees, as higher fees will have a negative impact on the deficit.

The Institute for Fiscal Studies says the change will reflect the real cost of the fees system, in which 70% of students will not re-pay in full.

Student finance is already being reviewed, however universities have warned against lower fees and a potential loss of funding.

Tim Bradshaw, chief executive of the Russell Group of universities, said: "Ministers may now be tempted to cut university funding because it will look better for the deficit, but good policy shouldn't be dictated by accounting rules."