Harsh reality strikes at loans company

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In basic terms, the student loan system works as follows. Student Finance England (SFE) allows students to take out loans to cover the large cost of their tuition fees. Students are subsequently obliged to progressively pay back this quantity plus an extortionate interest rate of RPI + 3% once they have graduated and are earning over £21,000 a year. If these conditions are not met, after 30 years the debt is written off.

A recent report, by the Commons Business Select Committee, has suggested that the current student loans system is at risk due an increasing amount of students being unable to pay back the money they were loaned. Latest figures have revealed that approximately 45% of loans will never be repaid, a figure also known as the ‘RAB charge’. Adrian Bailey, the Committee Chairman, revealed that government estimates suggest “the size of the outstanding student debt will increase to more than £330 billion by 2044”.

Further worrying news is that the Business Department has a record of misjudging the RAB charge. Meaning that not only is the loans system at a ‘tipping point’, but also the government may not have an accurate calculation of the severity of the situation. Therefore, with the news of a “potential black hole” (in the words of Adrian Bailey) in the government’s budget, the report concluded that a ‘urgent review’ of the methodology used by the student loans system, and the systems sustainability, is needed. Or in other words, the government needs to pull its socks up and consider the future more acutely.

Whether the mounting debt the government faces from unpaid loans will result in fees falling from the ludicrous £9,000 a year cannot be said. What is certain is that the government does not appear to have saved any money by trebling tuition fees. By shifting a higher proportion of tuition costs to students and reducing the government subsidy for these fees, it has actually just incurred further debts.

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