Government rejects call for student loans review

MPs requested system review after inquiry revealed ‘persistent miscalculation’ of money paid out in loans that will not be repaid

The government has rejected MPs’ calls for an urgent review of student loans despite being warned that the viability of the existing system is under threat because of a “large potential black hole” in its figures.

MPs on the business, innovation and skills select committee called for the review in July after an investigation revealed evidence of a “persistent miscalculation” of the department’s estimates of the amount of money paid out in loans that will not be repaid by students.

Under the current student loan system the government loses around 45p for every £1 it gives out in loans. The committee’s chair, Adrian Bailey, said that, according to the government’s own estimates, the size of outstanding student debt would increase to more than £330bn by 2044.

“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,” Bailey 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 government also rejected a recommendation that any changes to the terms and conditions of student loans should be subject to parliamentary approval. In response, Bailey said students would be shocked that “the government apparently believes it could hike up the interest rate of their loans without this constituting a change in the ‘Ts & Cs’ [terms and conditions]”.

Referring to the Liberal Democrats’ pre-election promise to scrap tuition fees, he said: “The experience of student fee election pledge cards provides a salutary reminder of the perils of promising one thing on student finance and then doing another. The government should reconsider its opposition to this recommendation for parliamentary approval, which would give a degree of reassurance and clarity to students taking on significant debt.”

Bailey said the future of student finance deserved further consideration and he would be approaching the backbench business committee for a Commons debate on the issue.

The government response, published on Thursday, said: “The government has no current plans to initiate a formal review of the sustainability of the student loans system in England. The costs of the loan system are 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.”

The government accepted a number of the committee’s other recommendations: it is improving debt forecasting and has set new debt collection targets for the Student Loans Company. It has also made changes to financial modelling around the Resource Accounting and Budgeting charge and introduced independent scrutiny of it.


Sally Weale, education correspondent

The GuardianTramp

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