An influential higher education think tank has warned that the repayment system for student loans is likely to ‘get tougher’ to avoid a crisis caused by unpaid student debt.
A report published on 21st May by the Higher Education Policy Institute (HEPI) says the government will have to either freeze or lower the salary at which people start repaying student debt (currently £21,000 a year), or alternatively remove the current policy of writing off of any outstanding debt after a 30 year period.
The report also suggest that tuition fees could be frozen at £9,000 a year to avoid the need to pay out higher loans to students and placing a further strain on public finances. However, many universities have been clamouring for higher fees to deal with increased costs.
Nick Hillman, director of the HEPI, warned
Without stricter repayment terms, there could be cuts to other key departmental programmes – such as apprenticeships or science.
The report attributes the current situation to the fact that the Department for Business, Innovation and Skills has been made to recover some of the increases in student loan defaults from its departmental budget by central government. Some experts have warned that up to 45% of student debt could be unpaid by 2045.
The large amount of defaults could also be seen as a potential argument for a policy proposing a reduction in tuition fees – such as the Labour proposal to lower tuition fees to £6000 as it would cut public spending in terms of the inital loan amount. Other potential options include varying the terms of loans including interest rate, repayment rate, repayment threshold and write-off period. Although, the author of the HEPI report, Andrew Gettigan, advocated freezing tuition fees and the repayment threshold as a solution, acknowledged that varying the terms of the contract for existing student loans could be seen as ‘morally indefensible’.
The President of the National Union of Students, Toni Pearce, told the BBC
This report yet again highlights the utter shambles which was the last government’s trebling of tuition fees.
It would be outrageous to now suggest that students should now be forced to pay for this through any change to the student loan terms and conditions, and students and their families simply would not stand for it.