Privatise loans to avoid crisis

December 12, 1997

THE government could avoid a looming higher education funding crisis by privatising student loans so that universities borrow money to lend to undergraduates, according to a committee of MPs.

Members of the education and employment committee have told the government that it must take action to deal with a university funding crisis in 1999-2000. The committee published its report on funding issues related to the Dearing report on Wednesday.

It says one way to deal with the impending crisis is to enable universities to take over student loans which would be financed by the private sector. The committee will take further evidence on this in the new year. It also recommends that the Treasury reclassify student loans in terms of public spending. This would recognise the fact that, while the money for loans must be borrowed, loans should not be counted strictly as non-recoverable spending.

The Department for Education and Employment could then avoid counting a significant amount of the total as spending, giving it increased flexibility to spend more on higher and further education without exceeding targets.

Margaret Hodge, joint chair of the committee, said: "If the government does not accept the option of reclassifying loans then they can go down the avenue of privatising student loans. Either way the government must act to avoid a crisis in 1999-2000."

The report says that the claimed net saving of Pounds 100 million from tuition fees in 1999-2000 will not be enough to meet the anticipated funding gap. It urges resistance to any Treasury moves to divert fee income from higher and further education.

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