Treasury calls out government on student loan sales

More than £6bn could be written off through the sale of £12bn of student loans in the next five years, the Treasury has warned.

Treasury calls out government on student loan sales

The Treasury committee published this possible impact on public finances in its recent report on student loans, which includes a series of recommendations for the government.  

The Treasury referred to the sale of £3.5bn of student loans for a total of £1.7bn in 2017 – a 51 percent write off.

It said the government plans to sell a further £12bn of student loans in the next five years and if the write-off rate remains the same as previous, more than £6bn of student loans could be written off.

As for the recommendations in the review, the Treasury has called on the government to address the case for re-introducing maintenance grants.

The Treasury said, that the government has said, maintenance loans are not intended to cover a student’s living costs in their entirety.

But the Treasury said students who lack access to additional sources of income, such as through parental contributions, can be priced out of a university education. Therefore, it is also calling on the government to reconsider the high interest rates on student loans.

The Treasury said: “The government has argued that the interest rates on student loans are progressive. However, graduates with very large salaries may in reality pay less over their lifetime than lower-earning graduates as they can repay the loan quicker, and therefore pay less interest.

“The Committee has not heard a persuasive explanation for why student loan interest rates should exceed those prevailing in the market, the government’s own cost of borrowing, and the rate of inflation.”

The Treasury has also called on the government to explain why the high level of tuition fees (current cap is £9,250) are desirable.

Nicky Morgan MP, chair of the Treasury committee, said: “The use of high interest rates on student loans is questionable. The government has justified it on progressive grounds, but the committee remains unconvinced as high-flying graduates may pay less than graduates on more modest earnings.

“The government should also consider how to simplify the student loan system to ensure that student finance is more understandable, and why a tuition fee rate higher than it expected is desirable.”