Government rules out student loans review

The government has ruled out an urgent review of the sustainability of the student loans system despite being advised to do so by a group of MPs

November 6, 2014

In a July report, the cross-party Business, Innovation and Skills Committee called for a review, citing evidence that a “persistent miscalculation of the department’s estimates of the RAB charge” – the amount of money paid out in loans that will not be repaid by students – had resulted in “holes in the budget”.

“We recommend that, as a matter of urgency, the department conducts a full review of all the financial assumptions underpinning the department’s RAB model,” the review concluded.

However in its response, published today, the government ruled out such a review, despite accepting a series of recommendations from the BIS committee’s report.

“The government has no current plans to initiate a formal review of the sustainability of the student loans system in England,” the response says.

“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.”

Adrian Bailey, chair of the BIS Committee, expressed disappointment at the government’s decision, pointing out that the government is currently estimating it will lose around 45p on every £1 it loans out.

“The government’s own estimates indicate the size of outstanding student debt will increase to more than £330 billion by 2044,” he said. “With the prospect of a large potential black hole in the government’s budget figures, it is all the more alarming that [it] has refused to conduct a review of the current student loan system.

“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.”

In its response, the government does accept a number of the committee’s recommendations, promising moves to improve debt forecasting, and to set new debt collection targets for the Student Loans Company. It will also introduce changes to financial modelling around the RAB charge.

However, ministers will retain the power to change the terms and conditions of students’ loan arrangements without any scrutiny or approval from MPs, despite the committee recommending otherwise.

“It will…come as a shock to students that the government apparently believes it could hike up the interest rate of their loans without this constituting a change in the ‘T&Cs’,” Mr Bailey said.

“The future of student finance deserves further consideration and I shall be approaching the Backbench Business Committee for a House of Commons debate on the issue.”

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