Four out of 10 student loans may never be repaid
Whitehall is concerned that almost 40% of the money lent to students will not be repaid (Thinkstock)The trebling of fees led to demonstrations and a crisis in the coalition, but Whitehall is now understood to be concerned that almost 40% of the money lent to students by the taxpayer to pay for their courses will never be repaid.
The crisis has been caused in part by concessions made to help Nick Clegg, the deputy prime minister, secure the agreement of rebellious Liberal Democrat backbenchers. These included a reduction in the repayments that low-income graduates will be required to make.
The fall in student numbers has also been far smaller than expected, so more loans are having to be paid out than the Treasury had forecast.
The fear is that, far from saving the taxpayer money, the cost to the public purse could go up.
When the fee system — which came into force only last year — was designed, the Treasury anticipated that about 28% of loans would never be repaid. Those estimates have gradually increased.
Solutions could range from increasing the interest rates charged to students to imposing harsher repayment terms.
Labour is expected to pledge a cut in maximum tuition fees to £6,000. This would help the Treasury by reducing the sums that had to be paid out in loans, but would anger higher education bosses.
Others support cutting student numbers or removing the cap on tuition fees altogether and increasing the role of private finance in offering student loans.
A senior source said: “The Treasury are all over this and are extremely worried about the viability of the system. They are taking a very long-term view but their estimate for non-repayment keeps going up. It is not helped by the recession, which means graduate incomes are going to be lower than they hoped.”
There are also fears that it will prove virtually impossible to chase down the growing numbers of European Union students to repay their tuition fee loans.
Reopening the debate on tuition fees would be politically explosive. Sir Steve Smith, vice-chancellor of Exeter University and former president of Universities UK, said: “It is inconceivable the government would want to reopen this issue before an election because the only way you can save money is to cut student numbers going to university or alter payment terms.
“Either is a political no-go area before an election.”
A Treasury spokesman said the reforms had “put higher education funding on a sustainable footing in the long term”.
Further concerns about the tuition fee system are being raised this weekend by a senior independent schools leader who says teachers need to do more to inform parents and pupils about the debts they could accumulate under the new fees regime.
Barnaby Lenon, chairman of the Independent Schools Council and former head master of Harrow, said students on four-year courses would have debts of up to £80,000 on graduation, once borrowing for living costs was included.
He said they faced paying it back over 30 years, with current annual interest rates on the loans for students at university at 6.6%.
“If you were an adult taking on this size mortgage you would go through a rigorous process which guarantees that you understand what you are taking on. That is not happening with 17 and 18-year-olds,” he said.
