Student debt rising faster than any other type of debt

As the amount of personal debt for households rises to an all-time high, the idea of a debt free future for our young people, students who have attended higher education, seems like a distant dream.

News that from September, interest rates on student loans will rise from 4.6% to 6.1% could see a future where today’s students will be paying back their loans for the next 30 years. After 30 years student loans are wiped. Some commentators say this basically represents a tax on education.

Student loan interest rates are tied to March’s retail price inflation figure.  At the moment, new starters and current students are charged 4.6% – the March 2016 RPI figure of 1.6%, plus 3% – on their loans. But from September this will rise to 6.1%, made up of the March 2017 figure of 3.1%, plus 3%.

The Russell Group speak out.

The Russell Group, which represents the UK’s most prestigious universities, has joined calls, urging the government to make funding fairer for students’

The Russell Group’s acting director, Dr. Tim Bradshaw, described the rate as “very high” and “out of touch” with commercial lending rates. “A reassessment here now seems highly appropriate as inflation starts to return,” he said.

He also called on the government to reconsider the £21,000 income threshold at which graduates become liable to start paying back their loan, suggesting a higher level would enable them to keep more money early in their careers.

These comments from the Russell Group, which represents 24 leading UK universities, suggests perhaps a shift in thinking. Bradshaw has blogged that  he accepts much of the current system which maintains sustainable funding in higher education, and acknowledges that students should pay some contribution.

But he added: “I think we can still look again at how the system might be made fairer for students without undermining the sustainability balance.

“First, the interest rate on loans at up to 6.1% from this September (RPI + 3% for those on salaries of £41,000 or over) is out of touch with commercial lending rates, and very high compared with the rates at which the government can borrow.

“The £21,000 repayment threshold could also be reconsidered. A higher level would allow new graduates to keep more of their earnings early on when individual finances are often tight.”

What the government said.

Defending the current arrangement, the universities Minister Jo Johnson responded saying: –

“Our system – where costs are split between the taxpayer and the student – is helping more young people from disadvantaged backgrounds go to university than ever before, up 43% since 2009.”

“We should of course not be complacent. Students deserve value for money for the courses they are paying for. One of the central goals of our higher education reforms is to make universities accountable for students’ experience and the quality of education they receive through the teaching excellence framework.”

Labour’s shadow education secretary, Angela Rayner has been granted an emergency debate on tuition fees in the Commons on Wednesday.

Government accused of ‘betraying a generation of students.’

Andrew Adonis, who was the architect of the student loans system under Tony Blair, called for tuition fees to be scrapped last week after becoming a “Frankenstein’s monster” that leaves students with crippling debts.

The government has been accused of ‘betraying a generation of students,’  after abandoning its previous commitment to uprate the repayment threshold in line with inflation in the 2015 autumn statement.

Russell Group’s Bradshaw noted: “Many have argued reinstating the link could be of particular benefit to those students on low and middle incomes.”

He also suggested repayments could be made through salary sacrifice arrangements which would reduce the tax bill for graduates, adding:

“Of course, there is a cost to government finances for each of these suggestions, but ultimately this should be seen as an investment in the long-term sustainability of the UK’s higher education system and in the future of those who study hard for their degrees.”

Student loan debt more than £100bn

Recent reports say student loan debt in the UK has risen to more than £100bn for the first time, underlining the rising costs young people face in order to get a university education.

Outstanding debt on loans jumped by 16.6% to £100.5bn at the end of March, up from £86.2bn a year earlier, according to the Student Loans Company. England accounted for £89.3bn of the total.

Jake Butler of the money advice website, said: –

“Lots of prospective and current university students will see these figures and worry about being part of an increasing pool of graduate debt.”

“As fees increase this number will only go up, as more and more money is lent out each year. There is some cause for concern here, mainly for the government, as it is now widely accepted that the majority of graduates will never pay off their whole student loan debt before it is wiped off 30 years after their graduation.”

The vice-president for higher education at the National Union of Students, Sorana Vieru, said student debt had risen to “eye-watering levels”.

The rise in student debt has been driven partly by rules introduced in 2012, allowing universities in England to charge up to £9,000 a year in tuition fees. In the year ending 31 March 2012, student debt was less than half the current level, at £45.9bn.

A senior economist at NatWest, said: –

Student debt was rising at a faster pace than any other form of debt, and eclipsed credit card debt of £68bn. “These latest figures show student debt is becoming of greater priority with every passing year. Student debt is the fastest growing type of borrowing and is rapidly becoming economically significant.”

He predicted that over the longer term, student loan debt was likely to double to £200bn in six years.