Student fees policy likely to cost more than the system it replaced

The Guardian is reporting that the proportion of graduates failing to pay back student loans is increasing at such a rate that the Treasury is approaching the point at which it will get zero financial reward from the government’s policy of tripling tuition fees to £9,000 a year…

New official forecasts suggest the write-off costs have reached 45% of the £10bn in student loans made each year, all but nullifying any savings to the public purse made following the introduction of the new fee system.

The universities minister, David Willetts, speaking in response to a parliamentary question from the shadow education minister, Liam Byrne, confirmed that the write-off figure – the resource accounting and budgeting (RAB) charge – is rapidly approaching the 48.6% mark. This is the threshold at which experts calculate that the government will lose more money than it would have saved by keeping the old £3,000 tuition fee system…

The hasty revision of departmental forecasts means that by 2042 about £90bn out of the overall £200bn in student loans will remain unpaid. The response to the parliamentary question said: “This department has been reviewing our modelling of the RAB charge on student loans. We currently estimate the RAB charge on student loans to be around 45%, which reflects our current estimate of the costs to government of the higher education subsidy to students.”

“By its nature an estimate is subject to change as it is highly dependent on macroeconomic circumstances, and the growth of graduate earnings over the next 30 years.

“We will continue to review our estimates in line with the latest data and advice from experts and stakeholders.”

…Against a backdrop of serious student violence in December 2010 ministers said that the tripling of tuition fees was necessary to save money in a time of austerity.

Under the new system students repay their loans only when they are earning over £21,000 – and repayments are linked to their earnings.

This week London Economics, found that if the write-off of students loans increased beyond 48.6%, “the economic cost of the 2012-13 higher education reforms will exceed the 2010-11 system that it replaced”.

The 45% RAB figure covers the write-off expense of both old and new style student loans. London Economics’ Dr Gavan Conlon said that this meant the specific write-off costs of the new loan system were expected to be above 45% and it would effectively be cheaper for the government to have kept the old £3,000 tuition fee system…

More at: Student fees policy likely to cost more than the system it replaced

This seems a little crazy… Is a system where virtually half the participants default on their repayments viable? Would they have defaulted anyway even if the fees had stayed lower? What do you make of this news and analysis? Please share in the comments or via Twitter…

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Comments

  1. nrcantor

    SchoolsImprove Next step will probably be to say the gov can’t afford I repaid loans and create a private market for them, screwing all.

  2. nrcantor

    SchoolsImprove Osbourne’s next step will be to say the gov can’t afford unrepaid loans & create a private market for them, screwing all.

  3. JanPrimrose

    FionaTipper SchoolsImprove So ridiculous when most university courses are not worth £9000 a year. The increase from £3000 was crazy.

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