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Three-quarters of graduates will never clear their student loans, report claims

The Institute for Fiscal Studies report found students from low-income families were graduating with the highest debt levels.

Most graduates will still be paying off student loans into their 50s, and three-quarters will never clear the debt, a new probe has found.

The Institute for Fiscal Studies (IFS) report said that initial gains made by poorer students in the controversial 2012 shake-up of the tuition fees system have been more than wiped out by subsequent changes.

The reforms brought in by the then coalition government originally saw the lowest earning third of graduates better off by £1,500, but replacing maintenance grants with loans sent debt rates soaring.

The changes resulted in students from low-income families graduating with the highest debt levels of more than £57,000.

Expected repayments from the lowest-earning third of graduates have increased by about 30% since 2012, while repayments by the richest third rose by less than 10%.

“The combination of high fees and large maintenance loans contributes to English graduates having the highest student debts in the developed world,” the report states.

The probe said that interest rates on student debt were “very high” at up to 3% above inflation.

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The report found there was limited Incentive for universities to provide high-quality courses in return for the money they receive (PA)

The average student who borrows £45,000 ends up paying another £5,800 in interest, while higher earners may have to fork out £40,000 in interest repayments, the IFS found.

“There is a risk that better-off parents will pay fees up front, especially if they think their offspring will be high earners. This would increase the cost to government in the long run,” the study said.

The IFS found that low-cost arts and humanities subjects got much bigger increases in funding, 47%, than high-cost science and engineering subjects, 6%, between 2011 – 2017.

The report said: “Incentives for universities to provide high-quality courses in return for the money they receive are surprisingly limited.”

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University funding has increased by about 25% per student since 2011 (PA)

Changes to the system reduced annual government borrowing in the short run by nearly £6 billion, and the financing of undergraduate education adds less than £1 billion a year to public spending, the report said.

The moves have cut the long term cost to the taxpayer of higher education by around £3 billion a year.

“This long run saving is lower because outlay on student loans is not included in measures of public spending, and 31% of the value of loans is not expected to be repaid,” the report said.

University funding has increased by about 25% per student since 2011, primarily funded by richer graduates, and institutions now receive an average of £28,000 per student per degree.

The report stated: “Reducing tuition fees or bringing back maintenance grants would have the advantage of allowing government to target specific students or courses that have wider benefits to society. This would, however, significantly increase deficit spending and lead to a smaller, but still considerable, increase in the long-run government contribution.”

Universities minister Jo Johnson said: “The Government consciously subsidises the studies of those who for a variety of reasons, including family responsibilities, may not repay their loans in full. This is a vital and deliberate investment in the skills base of this country, not a symptom of a broken student finance system.”

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