Graduates should only pay an interest rate of 1.5 per cent on their student loans – about a quarter of the current rate, says a parliamentary committee.
The House of Lords economic affairs committee says that the recommendation is one way that England’s “deeply unfair” system of fees and loans should be reformed.
The cross-party committee explains in its new report, titled Treating Students Fairly: The Economics of Post-School Education, that the current interest rate level based on the retail price index, plus 3 per cent, means that repayments are more expensive for people in middle-income jobs such as nursing, rather than high-paid lawyers or financiers, who pay off their debts more quickly.
The interest rate charged on post-2012 student loans should be reduced to the level of the 10-year gilt rate, which is about 1.5 per cent, said Lord Forsyth of Drumlean, chair of the economic affairs committee.
“This would mean reducing the interest rate from around about 6 per cent today, to 1.5 per cent,” he said, adding that “no student should incur interest while studying”.
The hard-hitting report also criticises England’s tuition fee system more widely, stating that it requires “immediate reform” because it offers poor value for money to individuals, taxpayers and the economy.
The decision to switch almost all higher education funding to tuition fees financed by student loans has hidden the true cost of public spending on higher education, it says.
“The accounting trickery attempted by the government in 2012, in which the high rate of interest on student loans created the fiscal illusion that government borrowing is lower than it actually is, has had a devastating effect on the treatment of students in England,” said Lord Forsyth, who added that it was “unacceptable to expect future taxpayers to bear the brunt of funding today’s students”.
He also called for the return of the “means-tested system of loans and grants that existed before 2016” and said that “total support [should be] increased to reflect the true cost of living”.
Prime Minister Theresa May launched a review of post-18 education in February, which will examine whether students and taxpayers are getting value for money.
The committee, which includes two former chancellors, as well as permanent secretaries to the Treasury and leading business figures as members, received evidence from more than 150 experts and organisations during its inquiry.
It says that the 2012 reforms to university financing have failed to create an effective market allowing undergraduate degrees to dominate when this might not be in the student’s or the country’s best interest.
The low quality and inconsistent availability of options, caused in part by a lack of funding, have made the problem worse, it adds, as well as highlighting the “collapse in flexible and part-time learning, with student numbers decreasing over the last six years by 60 per cent”.
The report calls for a new deal for post-school education funding that promotes all types of learning regardless of where or how it takes place.
It recommends the abolition of the Institute for Apprenticeships, increasing the powers of the Office for Students to act as a single regulator for all Level 4 and above qualifications, including for higher and degree apprenticeships and the introduction of a single regulator for all other post-school qualifications at Level 3 and below.