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Student fees system leaves pounds 15bn extra debt by 2020

July 13, 2014

Daniel Boffey Policy Editor

The coalition's pounds 9,000-a-year student fees regime will leave the next government with a pounds 15bn black hole in their finances, an analysis reveals. The failure of graduates to pay back student loans is forecast to burden whatever party is in power with a huge amount of unexpected extra national debt.

The analysis by the House of Commons library, based on figures released by the Office for Budgetary Responsibility, found that the government's new system of student fees in England will add pounds 15bn more debt than expected by 2020. This is because graduates are expected to pay back less of their tuition fee loans than the OBR had previously thought. Labour says this is partly due to a rise in the proportion of graduates on low pay, as well as more students taking up the loans.

Liam Byrne MP, the shadow minister for universities, said the student loan system was in dire need of reform. "Ministers have landed us with a double-whammy of debt. They've tripled tuition fees, plunging young people, already facing a cost-of-living crisis, into debt which many won't pay off until they are in their 50s. And now we learn the taxpayer faces pounds 15bn of extra debt by 2020."

The analysis shows that the Treasury initially believed that public sector debt would be burdened by pounds 73bn from the student fee system by 2020. It now appears that the true figure will be pounds 88bn.

Labour has repeatedly accused the government of bungling the introduction of the new student finance regime in 2012. At the time, direct state funding for universities was cut and student tuition fees almost tripled to pounds 9,000 a year in a move the coalition claimed would save the taxpayer money. Students can borrow cash for fees from the government upfront and start repaying only when they earn an annual salary of at least pounds 21,000.

Earlier this year it was revealed that the proportion of graduates failing to pay back student loans is increasing at such a rate that the Treasury was approaching the point at which it will get zero financial reward from the policy of tripling tuition fees.

Official forecasts in March suggested that the write-off costs have reached 45% of the pounds 10bn in student loans made each year, all but nullifying savings to the public purse that came with cutting into central funding to universities through the teaching grant.

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Source: Observer (UK)

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