Student loans are a mess, says former government adviser

The student loan system is a “mess” that successive governments have adjusted “purely for short-term political gain,” said one of the economists behind the tuition fee reforms.

The latest changes, which lower the income threshold at which graduates start repaying their loans and extend the repayment period before the loan is written off, are, according to Nicholas, just “cherry-picking” without an overall strategy to improve the system. Barr.

Barr is a professor at the London School of Economics who, along with Iain Crawford, a professor at the University of Oxford, advised Tony Blair’s government on student loan reforms in 2006, which raised tuition fees from £ 1,000 to £ 3,000 a year.

Tuition fees were first introduced in the UK in 1998 under Blair. They tripled in 2006 before tripling again to £ 9,000 a year under the Conservative-Liberal Democratic coalition government of David Cameron and Nick Clegg in 2012.

Students studying in the UK are entitled to take out loans to cover tuition and living expenses, which they repay at a rate of 9 per cent of income above a certain limit each year. The debt is settled after several years, so students who do not earn significantly will never repay the full amount.

This year, the repayment period was extended from 30 to 40 years to reduce the burden of defaulting on student loans on public finances. The repayment income limit was lowered to £ 25,000 from £ 27,295, meaning graduates starting university next year will have to start repaying their loans earlier. The overall effect of the changes is that more graduates will pay back more of their loans. Prior to the reforms, only a quarter of graduates were expected to repay the full amount.

The government is primarily concerned with making the student loan system “less leaky” so it looks better on public finances, but the reforms failed to tackle student loan interest rates, which should have been brought down to match government borrowing costs, Barr said.

With 4.5 pct. For example, the interest rate on student loans linked to the retail price index’s inflation target is higher than the average interest rate that homeowners pay on mortgages and is expected to rise further as inflation rises. Interest rates will be limited to RPI inflation, which is around 10 percent, for students starting next year.

“They have chosen cherries because they have only done the things that reduce how government spending appears in the national accounts,” Barr said. “They did not address the interest rate. And I think the reason was that it was the Treasury that said, ‘Get as much money back as you can.’

The government needs to develop a strategy for funding higher education and higher education that covers all the educational choices that students make after the age of 16, instead of adjusting the existing system of student loans, he added.

“What you have is short-term policy in tripling the fee, short-term policy in raising the repayment threshold, and what they are now trying to do is regain the situation,” Barr told The Times.

“It’s the right system, but with the wrong parameter … If I was asked to advise the Foreign Minister [for education] I would say the fees are too high. There must be a division between the graduate who reimburses tuition fees and the taxpayer. The payback threshold is too high and needs to be lowered. The interest rate is ridiculously high. ”

About 1.5 million students a year take out a loan to study in England. The reforms could deter some students from going to university, or it could deter some of those who go from moving away from home while studying, Barr said.

“The Ministry of Finance assumes that people are rational and therefore snatch as much money as possible and does not take into account that it has behavioral effects on people. Although it does not change which university and which subjects they do, it lowers people’s welfare, and that is not how it should be. ”

The government said that monthly repayments to students will not increase because they are linked to income, not interest. “The government will confirm the level of student interest rates in the coming months,” it read.

“For future students, the government has lowered interest rates, so from 2023-24, graduates will never have to pay back more than they borrowed in real terms.”

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