Three-quarters of graduates will never clear their student loans, report claims

The Institute for Fiscal Studies (IFS) release said that initial earnings made by poorer students in the controversial 2012 shake-up of the tuition fees scheme had been more than washed out by succeeding changes.

A large number of graduates will still be returning off student loans into their 50s, and 75 percent of them will never make the debt, the study has found.

Expected reparations from the lowest-earning third of grads have grown by about 30% since 2012, while payments by the richest third rose by less than 10%.

The changes brought in by the coalition administration initially saw the weakest earning third of graduates better off by £1,500, but substituting maintenance grants with loans made debt rates rising.

The changes made students from low-income households graduating with the highest debt rate of more than £57,000.

“The combination of high fees and large maintenance loans contributes to English graduates having the highest student debts in the developed world,” the report states.

The probe said that interest rates were “very high” at up to 3% higher than inflation.

A typical student who borrows £45,000 ends up spending another £5,800 in interest, while bigger earners may have to fork out £40,000 in interest payments, the IFS found.

“There is a risk that better-off parents will pay fees up front, especially if they think their offspring will be high earners. This would increase the cost to the government in the long run,” the study said.

The IFS saw that low-cost arts and humanities courses got much bigger raises in funding, 47% more than high-cost science and engineering courses, and 6% between 2011 – 2017.

The report said: “Incentives for universities to provide high-quality courses in return for the money they receive are surprisingly limited.”

Modifications to the system reduced yearly government financing in the short run by almost £6 billion, and the funding of undergraduate education adds less than £1 billion annually to public spending, the study said.

The progress has cut the long term expense to the taxpayer of higher study by around £3 billion a year.

“This long run saving is lower because outlay on student loans is not included in measures of public spending, and 31% of the value of loans is not expected to be repaid,” the report said.

University financing has risen by about 25% for every pupil since 2011, primarily backed by richer graduates, and schools now receive an average of £28,000 per student for every degree.

The report stated: “Reducing tuition fees or bringing back maintenance grants would have the advantage of allowing the government to target specific students or courses that have wider benefits to society. This would, however, significantly increase deficit spending and lead to a smaller, but still considerable, increase in the long-run government contribution.”

Jack Britton, an author of the report, said: “Recent policy changes have increased university funding and reduced long-term government spending on higher education while substantially increasing payments by graduates, especially high-earning graduates. There is probably not much further to go down this route, but proposals for reducing student fees tend to hit the public finances while benefiting high earners the most.”

Universities minister Jo Johnson said: “The Government consciously subsidises the studies of those who for a variety of reasons, including family responsibilities, may not repay their loans in full. This is a vital and deliberate investment in the skills base of this country, not a symptom of a broken student finance system.

“And the evidence bears this out: Young people from poorer backgrounds are now going to university at a record rate – up 43% since 2009.

“We should of course not be complacent. That’s why we have set up a new regulator, the Office for Students, and introduced the Teaching Excellence Framework to help ensure students get value for money from their fees.”

Colleague Chris Belfield, said: “Interest rates on student loans reached up to 6.1% in March 2017 and are very high compared with current market rates. Combined with high levels of debt, this increases average debt on graduation by £5,800. There is no impact on the repayments of the lowest earners, but the highest earners can expect to repay up to £40,000 in interest payments.”

The IFS’s Laura van der Erve, said: “Universities are undoubtedly better off under the current system than they were before the 2012 reforms. However, their incentives have shifted towards providing low-cost subjects.”