Student loans are the main method of direct government support for higher education students. More than £10 billion is loaned to students each year, this is expected to grow rapidly and reach around £330 billion (2014-15 prices) by the middle of this century. The expansion of loans has raised questions about graduate repayments and ultimately the cost of the system to the taxpayerJump to full report >>
|On 25 November 2015 BIS announced the outcome of its consultation on freezing the loan repayment threshold. This was published alongside the Spending Review settlement. It has decided to freeze the threshold from April 2016 for all post 2012 students. This freeze will last "...until at least April 2021, when the threshold will be reviewed." This briefing paper has been updated to include this change and the potential impact on public finances and different groups of students.|
Student loans are the main method of direct government support for higher education students. Money is loaned to students at a subsidised rate to help towards their maintenance costs and to cover the cost of tuition fees.
Currently more than £10 billion is loaned to students each year. This is expected to grow rapidly over the next few years and the Government expects the value of outstanding loans to reach over £100 billion (2014 15 prices) in 2018 and continue to increase in real terms to around £330 billion (2014 15 prices) by the middle of this century.
In his summer Budget 2015 the Chancellor announced that maintenance grants would end for new students from 2016/17 and be replaced by loans. He also announced consultations on freezing the repayment threshold for five years, allowing some universities to increase fees in line with inflation from 2017 and a review of the discount rate applied to the accounting treatment of loans. These are the biggest changes to student finance since 2012. When fully implemented they will mean more money is loaned, both per student and overall, and increase the amount that is repaid by middle and lower earning graduates.
Graduates repay these loans to the government after their earnings exceed the threshold level. These loans are therefore private contributions towards the costs of higher education. The student loans system aims to ensure that upfront costs do not deter potential students. Graduates repay student loans and they generally have above average incomes. In the past the loans system has been criticised on a number of different grounds including not covering living costs, excluding part-time students, being too expensive, targeting its interest rate subsidy at higher earning graduates and putting off those who are concerned about graduating with large debts.
This note gives a background to student loans, statistics on their take-up, total value owed, repayment, public expenditure, arguments for reform and factors that affect take-up. It does not look in detail at the repayment system in England for new students from 2012/13 which is included in the note Changes to higher education funding and student support from 2012/13.