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Warning on future student loan cost

The impact of the Government's major shake-up of university funding is "highly uncertain" and could end up costing the taxpayer more money per year than sending a child to secondary school, according to a new report.

The public cost of student loans depends on the earnings of graduates, and how they repay their debt, so the Government will not know for decades if the funding reforms have saved money , a new study by the Institute for Fiscal Studies (IFS) concludes .

Under the reforms, tuition fees were raised to a maximum of £9,000 a year in 2012, almost treble the previous fee, which stood at around £3,000.

Students do not start repaying their loans until after they have graduated and are earning at least £21,000 a year, at a rate of 9% on all income above this threshold.

Debts are written off after 30 years.

The IFS's new report looks at the group of English, full-time undergraduates who started university in 2012 - the first year of the new fees system.

It concludes that of every £1 the Government loans to students to cover their tuition fees and maintenance costs, around 43p will not be recouped.

On average, each student is lent just over £40,000 in today's money, the IFS estimates, which means that the average amount not recovered is around £17,000 per student.

The figures take into account money that students do not pay pack, plus what it costs the Government to borrow the money it lends to students, the think tank said.

For an intake of 300,000 students, this means that the total cost to the Government would be around £5.2 billion.

The report goes on to say that once other types of Government spending on undergraduates is taken into account - such as grants for students and teaching funding for universities - each student costs the taxpayer just over £24,500 in total over the whole of their degree course.

This works out at around £7,600 per year of study, for an average course of 3.2 years - more than the £6,000 on average that the Government spent on each secondary school pupil in 2012/13, the IFS said.

These estimates can change depending on graduates' earnings over the next 30 years, the think tank warned.

They have been based on the assumption that earnings will grow in line with forecasts made by the Office for Budget Responsibility (OBR) last December.

If graduate earnings rise in line with a more optimistic forecast made by the OBR in March 2012, then the average cost to the public purse per student would be 34p for every pound.

According to the IFS's estimates, the total taxpayer contribution towards student funding is just five per cent less that it would have been under the old funding system.

This is based on the OBR's December forecasts. Under the OBR's more optimistic forecasts from March 2012, the total public contribution would be an estimated 15% lower than under the old system.

The IFS suggests that the Government could cut the loan subsidy under the new system by increasing the repayment rate, reducing the level at which students pay back the money, or extending the repayment period.

These methods would be likely to increase the repayments made by middle-earning graduates, the report suggests.

The Government could also consider raising interest rates on loans, which would have an impact on high-earning graduates, it added.

IFS research economist and report author Wenchao Jin said: "The public cost of the student loan system is highly uncertain. It depends on graduates' earnings and repayment behaviour many years into the future, which we - and the Government - can only estimate.

"Our baseline estimates now suggest that the total Government contribution per student has fallen slightly as a result of the Government's reforms, but that even a small real increase in fees would wipe out these gains. Whether these reforms have reduced the taxpayer subsidy will remain unknown for many years to come."

The findings come just weeks after it was disclosed that the Government's own current assessment on the proportion of loans that will not be paid back is nearing the 48.6% threshold at which experts say the Government will begin to lose more money than it gains under the new system - effectively cancelling out the benefits of raising tuition fees.

As the IFS research was published, vice-chancellors' group Universities UK announced it is setting up a new panel to look at the student fees and loans system in England.

The panel will review areas such as whether the system is value for money for students and financially sustainable for the Government. It will also look at how the cost of providing tuition fee and maintenance loans can be reduced, UUK said.

A Business Department spokeswoman said: "As a result of our reforms, a greater proportion of students from disadvantaged backgrounds are going to university than ever before.

"We have protected those on lower incomes by increasing the repayment threshold to £21,000.

"Our universities are well funded for the long term and now receive around 25% more funding per student for teaching.

"These figures for repayments are estimates and based on a prediction of economic circumstances some 35 years in the future. They will continue to fluctuate and do not present an immediate pressure on the system."


From Belfast Telegraph