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Student Loan System Must Be Fair To The Taxpayer As Well As Students

Student Loan System Must Be Fair To The Taxpayer As Well As Students

Taxpayers should not take the hit for student loans, Donelan said.

4 min read

Overhauling interest rates on student loans will mean no student repays more than they borrowed in real terms.

Even before I came into politics, unfairness is something that I have never been able to turn a blind eye to.

In my role as Minister for Further and Higher Education, ensuring that both students and the taxpayer get a fair deal is paramount.

Something that came up time and time again when I was a backbench MP was interest rates on student loans. Because of interest, students can see their debt increasing year-on-year before they have even had a chance to start paying it back.

For me, it therefore became a personal mission to put this right. I have felt for a long time that both parents and students would have more confidence in the fairness of our system if the Government stepped in and said enough is enough.

I am therefore so delighted to have announced yesterday that we have done just that. We are delivering on our manifesto commitment. We are overhauling interest rates on student loans to ensure that no student ever repays more than they borrowed in real terms.

As of September 2023, for the entire length of the loan, interest rates will be capped to prevent them ever rising above inflation.

And what’s more, we are freezing tuition fees for a further two years. Combined with the previous five years of freezes, new tuition fee freezes and our interest rate overhaul, students will borrow up to £11,500 less than they otherwise would.

We are also investing almost £900m to deliver high quality teaching and facilities focusing on science, engineering and degree apprenticeships – this is the biggest increase in grant funding in a decade. We are also creating a new national scholarship scheme for high achieving disadvantaged students - something that I know will be transformative from both my own background and constituency.  

The other side of the coin is that as of April 2021, the total sum of UK student loans stood at £161bn. That is enough money to pay the entire UK population’s council tax bill five times over.

In fact, there are actually 150 countries whose entire GDP is smaller than our student loan debt. And without intervention, that figure is estimated to reach over half a trillion pounds by April 2043.

We need the system to be fair for the taxpayer as well as students.

Right now, the Government writes off unpaid student loans after 30 years. But consider what this means to the taxpayer in a world where careers are longer than ever.

If you have a degree, you are likely to be at or near your peak salary in your 50s, yet right now, this is precisely the moment when the loan is handed back to the taxpayer to deal with.

It surely cannot be right that taxpayers – most of whom have never been to university – should take the hit right at the moment that those who benefit from higher education stand to benefit the most.

We want to see graduates continue to financially benefit from university, but why should someone who didn’t go to university pay 44p of every pound borrowed by those that did?

So we will ask students to start contributing back to their loan once they start earning £25,000 per year. This is still considerably higher than the median salary of £21,500 for young non-graduates, and so ensures that graduates only begin paying back once they start receiving considerable financial gains from their degree.

This is a fair contribution: a graduate earning £28,000 would pay back £17 a month.

And we will write off the loans after 40 years, rather than 30 years. All the while, students will never have to pay back a penny until they start genuinely financially benefitting from the investment the taxpayer has made in their education.

We are also investing almost £900m into our higher education system to deliver high quality teaching and facilities focusing on science, engineering and degree apprenticeships – this is the biggest increase in grant funding in a decade. We are also creating a new national scholarship scheme for high achieving disadvantaged students - something that I know will be transformative from both my own background and constituency. 

These are common sense reforms that genuinely reinstall fairness in our higher education system: fairness for taxpayers helping to fund the system, fairness for the graduates benefitting from it.

Michelle Donelan is Minister for Higher and Further Education

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