Key Recommendations
The Committee has not heard a persuasive explanation for why student loan interest rates should exceed those prevailing in the market, the Government’s own cost of borrowing, and the rate of inflation.
Above-inflation rate on tuition fee loans whilst students are studying should be reconsidered
The Government has justified high interest rates being applied to loans whilst students are still at university as it prevents the loan from being invested, even though tuition fees loans are paid directly to the university. The Government should reconsider the punitive measures of charging positive real interest rates whilst students are still at university.
Abandon the use of RPI in favour of CPI to calculate interest rates
RPI was de-designated as a National Statistic, and it has been roundly criticised as a flawed measure of inflation. The Government should abandon the use of RPI to calculate student loan interest rates in favour of CPI.
Assess the case for re-introducing maintenance grants
The Government has said that maintenance loans are not intended to cover a student’s living costs in their entirety. Therefore, students who lack access to additional sources of income, such as through parental contributions, can be priced out of a university education. This is at odds with the Government’s aim of removing barriers to access, and the Government should address this by, amongst other things, assessing the case for the re-introduction of maintenance grants.
Explain why the higher than expected level of tuition fees are desirable
The incentives for students to choose courses that command smaller tuition fees are weak. The Government naïvely assumed that in advance of the 2012 reform to tuition fees, which increased the cap to £9,000, prevailing tuition fees would be around £7,500. Tuition fees are almost universally at the increased cap of £9,250, so the Government should explain why the higher levels of fees are desirable.
Simplify the system to ensure that student finance is better communicated
Student loan debt is only repaid when earnings surpass a given threshold, and it’s written off after a defined number of years. It shouldn’t be thought of as a typical debt, and terms such as ‘loan’ and ‘debt’ could serve as deterrents for young people considering applying to university. The Government should review how to simplify the system to ensure that student finance is more understandable.
Fundamentally rethink the offer to part-time students as numbers have declined sharply
Between 2008-09 and 2015-16, the number of part time students fell by 47 per cent. The Government’s review should include a fundamental rethink of its offer to part-time students. It should ensure that part-time study is a credible option as part of lifelong learning and retraining, and that it provides access to higher education for those who are unable to study full-time.
Sharia-compliant student loans should be introduced as soon as possible
Student loans are subject to a positive real interest rate, meaning they are not Sharia-compliant, which could deter some prospective students from participation in higher education for religious reasons. The Government should make use of Islamic Finance expertise both within the Government and externally to ensure than an alternative finance model is introduced as soon as possible.
Above-inflation rate on tuition fee loans whilst students are studying should be reconsidered
The Government has justified high interest rates being applied to loans whilst students are still at university as it prevents the loan from being invested, even though tuition fees loans are paid directly to the university. The Government should reconsider the punitive measures of charging positive real interest rates whilst students are still at university.
Abandon the use of RPI in favour of CPI to calculate interest rates
RPI was de-designated as a National Statistic, and it has been roundly criticised as a flawed measure of inflation. The Government should abandon the use of RPI to calculate student loan interest rates in favour of CPI.
Assess the case for re-introducing maintenance grants
The Government has said that maintenance loans are not intended to cover a student’s living costs in their entirety. Therefore, students who lack access to additional sources of income, such as through parental contributions, can be priced out of a university education. This is at odds with the Government’s aim of removing barriers to access, and the Government should address this by, amongst other things, assessing the case for the re-introduction of maintenance grants.
Explain why the higher than expected level of tuition fees are desirable
The incentives for students to choose courses that command smaller tuition fees are weak. The Government naïvely assumed that in advance of the 2012 reform to tuition fees, which increased the cap to £9,000, prevailing tuition fees would be around £7,500. Tuition fees are almost universally at the increased cap of £9,250, so the Government should explain why the higher levels of fees are desirable.
Simplify the system to ensure that student finance is better communicated
Student loan debt is only repaid when earnings surpass a given threshold, and it’s written off after a defined number of years. It shouldn’t be thought of as a typical debt, and terms such as ‘loan’ and ‘debt’ could serve as deterrents for young people considering applying to university. The Government should review how to simplify the system to ensure that student finance is more understandable.
Fundamentally rethink the offer to part-time students as numbers have declined sharply
Between 2008-09 and 2015-16, the number of part time students fell by 47 per cent. The Government’s review should include a fundamental rethink of its offer to part-time students. It should ensure that part-time study is a credible option as part of lifelong learning and retraining, and that it provides access to higher education for those who are unable to study full-time.
Sharia-compliant student loans should be introduced as soon as possible
Student loans are subject to a positive real interest rate, meaning they are not Sharia-compliant, which could deter some prospective students from participation in higher education for religious reasons. The Government should make use of Islamic Finance expertise both within the Government and externally to ensure than an alternative finance model is introduced as soon as possible.
Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said "The use of high interest rates on student loans is questionable. The Government has justified it on progressive grounds, but the Committee remains unconvinced as high-flying graduates may pay less than graduates on more modest earnings."
"No other persuasive explanation has been provided for why student loan interest rates should exceed those prevailing in the market, the Government’s own cost of borrowing, and the rate of inflation."
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