Stormy weather for BIS as MPs savage forecasting failures

MPs in charge of examining public spending “don’t have confidence” in the government figures behind the £200 billion student loans system.

February 14, 2014

In a report on student loans published today, the Public Accounts Committee (PAC) says that the government must improve forecasts on graduate repayments to “reduce the ever growing write-off figures” that apply to the current loans system.

The report also criticises plans to sell student loans, through which the government proposes to fund the expansion of student numbers.

The government “cannot yet give us confidence that it can assess the value for money of a sale or the long-term cost to the taxpayer”, the PAC says.

Liam Byrne, Labour’s shadow minister for universities, science and skills, said the report had “exposed an astonishing £80 billion black hole in the student finance budget”, claiming that “it is now crystal clear the system… is unsustainable and is going bust.”

Margaret Hodge, chair of the PAC, said that based on recent government estimates that 35 to 40 per cent of loan outlay would never be repaid, £70 billion to £80 billion would be written off by 2042.

“But we don’t have confidence in those figures,” she said. “We think that the value of student loans never to be repaid could be even higher – because the government consistently overestimates what’s due to be repayed by some 8 per cent.”

The report follows a bruising PAC hearing in December, when Ms Hodge muttered “pathetic” and “Jesus” in response to evidence from the top civil servant in the Department for Business Innovation and Skills and the chief executive of the Student Loans Company.

Today’s report says that the approach to collecting debt from BIS and the SLC “lacks rigour”. The SLC must also “stop using premium-rate phone lines” for borrowers in the new financial year, it says.

On the “HERO” model used by BIS to forecast graduate repayments, the PAC says that the department’s 8 per cent over-estimate of repayments “may be due to optimistic assumptions used in the HERO model about future graduate earnings and earnings growth.

“The forecasts assume, for example, that rates of wage growth seen in the last three decades will continue despite recent evidence on graduate pay suggesting this may be unrealistic.”

Rachel Wenstone, vice-president (higher education) at the National Union of Students, said: “The government has got its maths badly wrong. The £9,000 tuition fees model is ideology pursued at the expense of common sense, leaving the public deeply exposed to a completely unsustainable funding system.”

A BIS spokesman said: “We acknowledge that there is room for improvement in certain areas, and that the system needs to be fit for purpose going forward as the size of the loan book continues to increase.” 

He added that a “new and more accurate forecasting system is also being developed”.

john.morgan@tsleducation.com

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Reader's comments (1)

What a surprise? All governments seem to have an inability to see beyond the next election. Perhaps the initial loan should be granted and administered by banks. the government could flex a guarantee to income of family of student thereby encouraging more loans to less well off (public and social good), the country gains from the skills of financial institutions motivated by getting customers young and having to provide good service. At least then we would know the actual cost now rather than deferring it to the never never. there would still need for government to banker costs for this ut it would happen now. Why not convert some of the current QE funny money to educational bonds.

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