Warning over student loan write-off


Warning over student loan write-off

Writing off student loan debt could cost the public purse more than the Government has forecast, according to a cross-party group of MPs.

A report by the Commons public accounts committee (PAC) suggests that the Government is under-estimating the value of student loans that will never be paid back.

The total value of outstanding student loans is forecast to quadruple from £46 billion to around £200 billion by 2042 in today's prices, following the move to triple tuition fees to a maximum of £9,000 a year, it says.

According to Government forecasts, around 35% to 40% of this will never be repaid.

Under the reforms, student loans are now written off after 30 years.

But the committee says it has a lack of confidence in these figures and that the value of loans that will not be repaid may be higher.

The report concludes: "The Department for Business, Innovation and Skills (BIS) is not doing enough to secure value for money from its collection arrangements.

"The Department is unable to accurately forecast student loan repayments, and does not have a sufficient understanding of the likely future cost of non-repayment to the taxpayer."

It calls for the Business Department to publish clear annual forecasts of the money it expects to collect in the year ahead, and invest in improving its forecasting capabilities so that it can take action to reduce growing write-off figures.

PAC chair Margaret Hodge said: "There is around £46 billion of outstanding student loans on the Government's books, and this is before the full impact of fee rises to £9,000 a year. This figure will rise dramatically to £200 billion by 2042.

"The Government assumes that 35% to 40% of the total will never be repaid. That is some £16 billion
to £18 billion on the current debt of £46 billion and £70 billion to £80 billion on the estimated value of student loans by 2042."

The Labour MP for Barking added: "We don't have confidence in those figures. We think that the value of student loans never to be repaid could be even higher - because the Government consistently overestimates what's due to be repayed by some 8%. The Department must improve its forecasting so that action can be taken to reduce the ever-growing write-off figures."

The report also found that BIS and the Student Loans Company (SLC) need to do more to improve how they collect loan repayments.

It warns that the SLC lacks information on what around 368,000 graduates who are not repaying their loans, but are classified as should be making repayments, are doing, and has little information on British graduates who live abroad and EU graduates who have left the UK.

Ms Hodge said: "The Student Loans Company is in the dark over what a large number of borrowers who are not repaying at the moment but are still classified as being in the 'repayment' category are currently doing. It knows very little about British graduates who live abroad or about graduates from the EU who have since left the country. Will they ever pay back their loans? The Student Loans Company simply doesn't know.

"The Department and Student Loans Company have not put enough energy into identifying those borrowers who should be making repayments but have slipped out of contact."

The PAC's findings come just months after a National Audit Office (NAO) report revealed that the 368,000 former students that the Government does not have enough information about have a total remaining debt of around £5.3 billion. These are students for whom there are no current UK employment records or other details of earnings.

This could be because they are unemployed students living in the UK, EU students who have returned home or UK students who have moved overseas.

It means that the Government does not have enough information to decide whether these students should be making repayments on their loans, and if so, how much.

The watchdog warned that the BIS has not done enough to establish whether borrowers with no current employment record are earning enough to repay their loans.

While many of these may not be in work, BIS, and SLC which helps collect payments, have carried out little analysis on how many may be working overseas, or the repayments that may have been missed, the NAO said.

A BIS spokesman said: "The Government has an effective and efficient process for collecting student loans through the tax system, resulting in high collection rates at a low cost which we believe demonstrates good value for money.

"We acknowledge that there is room for improvement in certain areas, and that the system needs to be fit for purpose going forward as the size of the loan book continues to increase."

Sally Hunt, general secretary of the University and College Union (UCU), said: "The Government rushed through the new system without doing the proper maths. This policy had nothing to do with austerity measures; it was all about ideology and passing the debt for a university education on to students.

"Amazingly, we may well end up with the taxpayer footing a larger bill for students' education than before students had to pay £9,000 a year fees. It's time for a rethink."

Shadow universities minister Liam Byrne said: "The Public Accounts Committee has today exposed an astonishing £80 billion black hole in the student finance budget.

"It is now crystal clear that the system ministers have put in place is unsustainable and is going bust."