Letter: Subsidies don't work 1

March 29, 2002

Loud cheers for Universities UK's apparent acceptance ("Access myths refuted", THES , March 22) that "better-off students profit by taking out interest-free student loans".

Interest subsidies do not help students because only graduates repay loans. They do not help low-earning graduates because unpaid debt is cancelled after 25 years. They do not help higher-earning graduates early in their career because monthly loan repayments depend on earnings. Interest rates have no effect on monthly repayment size but only loan duration.

Subsidies help only mid-career higher-earners, whose loan repayments are "switched off" earlier.

Graduates should pay an interest rate equal to the government's cost of borrowing - not the credit card or overdraft rate. The present value of the resulting savings is £700 million a year - enough to finance generous targeted grants. The National Union of Students' defence of interest subsidies will benefit those who need it least. That is unacceptable.

Nicholas Barr
London School of Economics

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