University of Sussex Students' Newspaper

Report finds increasing Student Loan based interest rates would save Government billions

Robyn Cowie

ByRobyn Cowie

Sep 25, 2021

Words by Robyn Cowie

A recent report created by the architect of the current system of student finance, Nick Hillman, has found that the current loan repayment scheme for students in England is in dire need of reform. 

The crucial findings of the report stated that “increasing the amount that graduates in England repay on their student loans could save the government close to £4bn each year and avoid universities having their income slashed”. 

Hillman was a special adviser to the universities minister including in 2012 when tuition fees in England were raised to £9,000. Since then, it has been found that lowering the income levels at which students made loan repayments would ensure the English system of higher education would become both more efficient but also fairer for all students. This was proven with modelling done by the Higher Education Policy Institute, whose modelling found that cutting the graduate repayment threshold from £26,000 to £19,000 made it more encompassing for more recent graduates. This would result in more graduates paying off more of their personal student loan debt before it was written off. It is after thirty years when graduates’ debts which they have accumulated from pursuing higher education are written off. 

Hillman stated, “Our modelling shows some of the changes to loans that might be made instead. For example, it is possible to reduce the write-off costs by reducing the repayment threshold or extending the repayment period. Such tweaks might not be popular but they could deliver savings if politicians are determined to find them”. 

In partnership with London Economics, the Higher Education Policy Institute calculated that the average student debt on leaving would be £47,000, with 54% written off after 30 years. Furthermore, less than one in eight students would pay off their loans in full, while one in three wouldn’t pay back a penny. 

This report was created because the Treasury is currently examining how to save money in regards to Higher education and student loans. Outstanding student loans due to the thirty year threshold reached £140bn last year. Other potential solutions to recovering some of this deficit include; cutting annual tuition fees to £7,500, reducing student numbers or spending less on each student. All of which have resulted in outcry from University Chancellors and students alike. “Cutting places at a time of rising demand is particularly unwise, as is giving institutions less for teaching when their finances are already so squeezed” Hillman said. 

Responses to the report have been mixed. “Ministers, and those in think tanks, would do well to remember that even lower-earning graduates already spend most of their 30s and 40s paying effective tax rates of over 40%. A threshold reduction to well below the average worker’s salary would make that a reality for many graduates fresh out of university too, making it harder for them to plan and save for the future” said Jo Grady, the general secretary of the University and College Union. They raise the leading concern to this policy shift, that these potential changes would impact low income earners the most. 

This report is a reminder of the issues which face both students and the government alike. It is unclear yet how this issue which the report attempted to solve shall be fixed. However, any potential solution is one which is set to negatively impact students in England.

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