Unpaid student loans cost billions

Writing off student loan debt could cost the public purse more than the Government has forecast

Writing off student loan debt could cost the public purse more than the Government has forecast

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THE TREASURY will be forced to write off more than £80 billion in unpaid student loans over the next 30 years, a public spending watchdog has warned.

The Public Accounts Committee (PAC) says that the Government is over-estimating the amount that will be paid back by students after they graduate.

Tuition fees have been almost trebled by the coalition under a new regime which sees graduates start to make repayments once they begin to earn more than £21,000-a-year.

If the loans have not been paid back after 30 years they are then written off.

Under this system PAC warn that the total value of outstanding student loans is forecast to quadruple from £46 billion now to around £200 billion by 2042 in today’s prices.

Since the higher fees were brought in eight out of ten universities in Yorkshire are now charging or planning to charge the maximum £9,000-a-year fees.

Only Huddersfield University and Leeds Trinity University are charging lower than this.

According to Government forecasts, around 35 per cent to 40 per cent of Treasury loans to students will not be repaid over the 30 year period.

But today a new report from PAC questions these predictions.

It concludes: “The Department for Business, Innovation and Skills (BIS) is not doing enough to secure value for money from its collection arrangements.

“The department is unable to accurately forecast student loan repayments, and does not have a sufficient understanding of the likely future cost of non-repayment to the taxpayer.”

It calls for the department to publish clear annual forecasts of the money it expects to collect in the year ahead, and invest in improving its forecasting capabilities so that it can take action to reduce growing write-off figures. PAC chair Margaret Hodge MP said: “There is around £46 billion of outstanding student loans on the Government’s books, and this is before the full impact of fee rises to £9,000 a year. This figure will rise dramatically to £200 billion by 2042. The Government assumes that 35 per cent to 40 per cent of the total will never be repaid. That is some £16 billion to £18 billion on the current debt of £46 billion and £70 billion to £80 billion on the estimated value of student loans by 2042.”

The Labour MP for Barking added: “We don’t have confidence in those figures. We think that the value of student loans never to be repaid could be even higher - because the Government consistently overestimates what’s due to be repayed by some eight per cent. The Department must improve its forecasting so that action can be taken to reduce the ever-growing write-off figures.”

The PAC report also found that BIS and the Student Loans Company (SLC) need to do more to improve how they collect loan repayments. It warns that the SLC lacks information on what around 368,000 graduates who are not repaying their loans, but are classified as should be making repayments, are doing, and has little information on graduates who live abroad Ms Hodge said: “The Student Loans Company is in the dark over what a large number of borrowers who are not repaying at the moment but are still classified as being in the ‘repayment’ category are currently doing.

“It knows very little about British graduates who live abroad or about graduates from the EU who have since left the country. Will they ever pay back their loans? The SLC simply doesn’t know.”

A BIS spokesman said: “The Government has an effective and efficient process for collecting student loans through the tax system, resulting in high collection rates at a low cost which we believe demonstrates good value for money.”

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