Member Article

Three quarters of students will not pay loan back

Nearly three-quarters of students will fail to clear their student loans before they are written off after 30 years.

That is the findings of a new report from think-tank The Sutton Trust and the Institute of Fiscal Studies, which also sugges the majority will be paying off their loans well into their forties and fifties.

The report follows the Department for Business, Innovation and Skills recent statement that it now expects that 45% of loans given to students paying the higher fees will not be repaid, close to the 48% level where the gains to the Exchequer of the higher fees are wiped out.

Conor Ryan, director of Research at the Sutton Trust, said today: “There has been a lot said about the lower repayments that graduates make in their twenties under the new loan system, but very little about the fact that many graduates will face significant repayments through their forties, whereas many would previously have repaid their loans by then.

“The new system will benefit graduates who earn very little in their lifetime. But for many professionals, such as teachers, this will mean having to find up to £2,500 extra a year to service loans at a time when their children are still at school and family and mortgage costs are at their most pressing.

“With recent revelations about the proportion of loans unlikely to be repaid, it seems middle income earners pay back a lot more but the Exchequer gains little in return. We believe that the Government needs to look again at fees, loans and teaching grants to get a fairer balance.”

Claire Crawford of the University of Warwick and the Institute for Fiscal Studies added: “The new HE finance system will leave graduates with much more debt than before. But the effects of the changes will be quite different for different people and at different parts of their lives. Graduates who do less well in the labour market will actually end up paying back less than before, while middle and high earners will pay back much more.

“In that sense, the system is more progressive and looks in many ways rather like a graduate tax. The size of the repayment threshold also means that graduates will generally pay back less during their twenties but much more later in their careers, especially when they are in their forties. Remarkably, almost three-quarters will have some debt written off 30 years after graduating.”

This was posted in Bdaily's Members' News section by Tom Keighley .