Student Loans System Could Implode in a Financial “Black Hole”


As you bright-eyed, bushy-tailed Freshers begin your university adventure, you’re undoubtedly keen and excited for what is to come – interesting lectures, great facilities at the union, being involved in societies, making new friends, socialising and being independent. But there’s one long term effect of coming to university that most students won’t be looking forward to…paying back student loans.

Earlier this summer, it was reported that the student loan system has predicted the cost to the taxpayer inaccurately. Reports from MPs in the Business, Innovation and Skills Select Committee (BIS), have called for an urgent review of the student loan system. When fees were increased to £9,000, it was forecast that 28p would be lost for every £1 of student loans. Yet, according to the report, the government loses 45p on every £1 of loans to students.

This could lead to a hypothetical “black hole” in the budget, but a spokesman from BIS denied this, claiming that its costs are based on long term projections that may fluctuate short term.

The increase in loans to students and rise of tuition fees to £9,000 per year in 2012 means that in 30 years the total debt will be £330billion. One reason why the government has capped fees at £9,000 a year in England is to protect the Treasury; higher fees mean bigger loans hence more losses. Most of this is unlikely to be repaid, as certain financial criteria has to be met once the student leaves university, and is paid back proportionally. At the moment, students are loaned money by the Treasury for their fees and living costs. Students do not have to pay their loans back until they are earning £21,000 and these debts are written off after 30 years. A recent study called ‘Payback Time?’ showed that 73% of students will never pay their loan back fully. MPs are also questioning the efficiency of the Student Loans Company’s collection process.

bank-2179_640Previously, the government has promised to remove the cap on student numbers and further expand and fund university places, but the problems with the student loan system means that this seems completely impractical. It will cost £5.5billion.

At the moment, students are loaned money by the Treasury for their fees and living costs. There had been suggestions that student loans could be privatised to help fund this university expansion. Notably, Business Secretary Vince Cable has blocked the sale. The select committee report recommends caution over selling loans. MPs implied that it may help financially but the business department “has yet to prove” that such a sale represents good value for money, and could lead to greater exploitation of graduates and far fewer students going to university. Although, former Universities Minister David Willetts claimed that the planned increase in student numbers was not dependent on such loan sales. It could lead to higher tuition fee charges, changes in loan terms and the way higher education works. Universities could take on some of the risk that their own students repay less of their student debt than expected. There could be some controversial consequences of this, as the easiest way to cut loan defaults would be to accept fewer women and students from poorer families, since both groups tend to have lower lifetime earnings.

The concern of the Russell Group, an elite group of 24 leading research Universities, which includes the University of Southampton, is that increased student numbers without sufficient funding would mean stretching university budgets too thinly.

Toni Pearce, National Union of Students president, said:

“Forcing debt on to students as a way of funding universities is an experiment that has failed not just students, but our country. Politicians need to recognise that we will only achieve a sustainable higher education funding system if we abandon the discredited regime of sky-high fees and debts altogether.”

Shadow Minister for Universities, Science and Skills, Labour’s Liam Byrne, agreed, stating;

“Another day, another damning indictment of the government’s failed tuition fee regime. They’ve burdened young people with a debt they cannot afford, and now the taxpayer is liable for £330billion over the next 30 years. This is unsustainable and the cross-party BIS committee is right to call for an urgent review into the sustainability of the student loan system.”

A spokesman for the Department for Business, Innovation and Skills said:

“The government is committed to ensuring that the taxpayer is receiving value for money and that is why we are continuing to work with the Student Loans Company on improving best practice and have already dramatically tightened the regime for recouping repayments from graduates both domestically and overseas.”

Just something cheery to start you off in your University path! Whatever happens with your student loan, it is absolutely imperative that you make as much of University as you can. Three or four years go by surprisingly quickly, and you need to make the most of every second of it! Join some societies, learn something new and enjoy yourself. But still, use your student loans wisely, while you still can!


News Editor 2015/16. Philosophy and Politics student. Opinionated activist with a questionable sense of humour. Left Wing, Critique of the Status Quo and diplomatic debater who loves writing for you!

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