Headache for Hammond as new student loan rules leaving him facing a £12bn black hole

The Chancellor faces losing £11.6billion from his financial war chest because of new rules over how student loans are accounted for. The Daily Mail reports.

Student debt will be included in Treasury expenditure for the first time later this year, to reflect the fact that much of it will never be paid back. The change poses a major headache for Philip Hammond.

These loans are repaid directly from students’ salaries when they start earning more than £25,000 a year, with 9 per cent of earnings above this threshold handed over to creditors.

Any remaining money that is owed is written off by the Government 30 years after a graduate started making repayments.

At present the Treasury assumes that all student loans will eventually be repaid in full. This means that the policy is not recorded on its books as costing anything.

But the Office for National Statistics has now decided this is a flawed approach because some borrowers will not break through the earnings threshold, and many of those who do will not pay off their bills in full.

As a result, it is changing the rules so that the Government has to accept that it will stump up some of the bill for unpaid loans.

The changes are due to come into force in September.

Read more Headache for Hammond as new student loan rules leaving him facing a £12bn black hole

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