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UK: 43% EU student loans outstanding; state funding system under threat

A damning report by the parliamentary Business, Innovation and Skills (BIS) Committee shows that around 19,000 EU students and nearly 400,000 English students are either in arrears on their university loan payments or have no earnings information (on which repayments are based) available.

Outstanding student debt could swell to over £330 billion by 2044

The “continued existence” of the UK student loans system is under threat due to a “worrying record of miscalculation” and poor debt collection efforts, the report says, criticising the government for a “lack of rigour” in student debt collection.

“Government needs to get its act together and properly calculate how much of these student debts are ever likely to be paid back”

It has called for an expedited review into the sustainability of student loan funding.

The government loses around 45p of every £1 it lends through the student loans system according to the Committee. These losses resulted in the collection of £111m less than expected in 2011-12.

Drawing on data from an earlier report published by the National Audit Office (NAO), the Committee found that as of March 2013, half of the 22,000 EU graduates living in the UK and 7,000 of the 16,000 who have returned to their homes in the EU with outstanding loans were either in arrears or had provided no earnings information.

This figure – 43% – compares with around 14% of English graduates who are in arrears or with no earnings information. The proportion of EU students as of March last year who had fully repaid their loan was also lower – around 9.5%, compared to 14.8% of English students.

If the negligence continues, outstanding student debt could swell to over £330 billion by 2044, a sevenfold increase, according to government estimates.

“With the prospect of a large potential black hole in the government’s budget figures, government needs to get its act together and properly calculate how much of these student debts are ever likely to be paid back,” Adrian Bailey MP, Chair of the Committee, said.

The government needs to set out a clear timescale for pushing ahead with a review of the overall student loans system because the alternative is an unfunded model which would leave students, universities, and taxpayers with a very raw deal indeed,” he added.

The Government needs to set out a clear timescale for pushing ahead with a review… the alternative is an unfunded model which would leave students, universities, and taxpayers with a very raw deal indeed”

The Committee recommends the government explore examples of effective student debt collection, including those used in the USA.

The “soft terms” of the loans offered to UK and EU students mean that the UK government effectively subsidises student loans, the report notes, as it loses money by lending at an interest rate lower than it pays to borrow capital and allowing borrowers to default on their loans after 30 years.

The repayment scheme for the loans is based on income; for funding granted before 2012 repayments begin once a graduate’s income reaches £16,910 and £21,000 for loans given post-2012.

The Committee has also called on the government to clearly lay out how the £5.5 billion required to fund extra student loans now the cap on student numbers has been lifted, after expressing concern that it could result in a multi-billion funding gap.

Bailey concluded that the loans system needs urgent attention, adding that “the financial funding system for higher education is looking increasingly fragile, coming under the strain of unfunded commitments and poor debt collection”.

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7 Responses to UK: 43% EU student loans outstanding; state funding system under threat

  1. The whole thing’s a joke. Why would any UK tax-paying parent choose to send their child to university and then dutifully pay back the £££££ tuition fee loan, whilst many EU students return home and disappear without paying a penny back ?! It’s madness. Is it any wonder people vote UKIP ?!

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