Half of modern students ‘will not fully repay loans’

Around half of all students who take out student loans from 2012 onwards will never fully repay the money, Whitehall’s spending watchdog says.

According to the National Audit Office (NAO), the number of people with loans to repay – of whatever value – will increase from three million in 2012-13 to 6.5 million by 2042.

But the Department for Business, Innovation and Skills (BIS) said it expects that around 35% of the money given out in loans this year will never be recovered.

In a report released today, the NAO said that the total value of outstanding loans in March 2013 was £46bn, only £31bn of which BIS expected to ever be repaid. The news, which comes only days after it was announced that the government sold off student loans worth nearly £900m to a private firm for £160m, will pile on further pressure.

“In 30 years’ time, we are looking at huge sums of debt on the government balance sheet that may never be recovered,” said the chair of the Public Accounts Committee Margaret Hodge MP.

She added: “The value of outstanding student loans is set to quadruple over the next 30 years because of changes including the hike in tuition fees. By 2042, £200 billion will be owed, an enormous amount of money.

“It is essential that government collects every pound it can of the debt that should be collected.”

The National Audit Office said that BIS, which is responsible for recovering more than 80% of the money loaned out, is “not be well-placed to secure value for money” and called on it to improve on its collection of student loans.

‘Frightening’

The NAO added: “In designing how student loans would work, BIS anticipated that a proportion of the loans would not be repaid.

“However, BIS has not set an annual target for the amount to be collected because repayments are affected by graduate earnings and economic factors outside its direct control. It does not separately publish its forecasts for the amounts it expects to be collected and has had difficulty developing an accurate forecasting model.

“Annual repayment forecasts are consistently higher than amounts collected and BIS cannot explain why forecast repayments are currently around 8 per cent higher in value than actual repayments.”

Amyas Morse, head of the National Audit Office, said: “Given the expanding size of the student loan book, the Department for Business, Innovation and Skills now needs to take a more energetic and considered approach to maximizing the value of the loan book to the taxpayer and achieving a high level of collection performance.”

‘Out of control’

Ms Hodge added: “BIS, along with the Student Loans Company and HMRC, needs to get a proper joint strategy in place that ensures realistic and robust recovery targets are set, information on borrowers is improved and every avenue for recovery is explored, to minimise the risk to the public purse.”

A spokesman for the Association of Teachers and Lecturers called the NAO’s report “frightening”. Martin Freeman said: “The student loan system is out of control.”

In its report, the NAO said that, between them, BIS, HM Revenue & Customs and the Student Loans Company collected £1.4bn in student loan repayments in 2012/13, at a cost of £27m.

It also showed that the total value of student loans from 1990 is £55bn, of which £46bn was still outstanding in March 2013.

A spokesman for BIS said: “The report demonstrates that there is an effective and efficient process resulting in high collection rates at a low cost which we believe demonstrates good value for money.

“We need to ensure that all borrowers who are earning over the relevant payment threshold are repaying their loans including those who have moved overseas after leaving their course. We are continually improving the collection process for borrowers and we will carefully consider the NAO’s recommendations as part of this programme.”

Mick Laverty, Chief Executive of the Student Loans Company said: “I am pleased that the NAO report recognises the effective joint working arrangements that the Student Loans Company has with HMRC and BIS and the benefits that using the UK tax system brings for the efficient collection of student loan repayments. SLC will use the findings and the recommendations from the report to help us further improve the way we secure the loan repayments due from all our borrowers, including those who are overseas.”