Asked by
To ask His Majesty’s Government what assessment they have made of
the level of interest being charged on student loans.
The Parliamentary Under-Secretary of State, Department for
Education () (Con)
My Lords, our recent reforms, implemented in August 2023, ensure
that the student loan system is fairer for taxpayers and for
students. New students on the new loan terms will benefit from a
reduction in interest rates to the retail prices index only. This
ensures that they will not repay, under those terms, more than
they originally borrowed when adjusted for inflation.
(Lab)
My Lords, unlike residents of Austria, Belgium, the Czech
Republic, Denmark, Finland, France, Germany, Greece, Italy,
Norway, Scotland and Spain, people living in England pay
university tuition fees—a major cause of the student debt of more
than £206 billion and rising. The average debt of £45,000
currently attracts a 7.7% compound interest rate and is rising.
Can the Minister explain why the interest rate on student debt is
higher in real terms than the equivalent interest charged on a
mortgage?
(Con)
I think the noble Lord knows the answer to his question: it is
not appropriate to compare mortgages with student debt, which is
unsecured and expires and does not have to be repaid in full. The
noble Lord shakes his head, but he can do the maths: a mortgage
is asset-backed, and one has to repay it; a student loan is not
asset-backed and expires. As the noble Lord knows, under the
current system, the vast majority of students do not repay it in
full.
(Con)
My Lords, I declare that I have a number of children and
grandchildren who are suffering from the ridiculous regime of
charging students interest at a stupid rate, when the Government
could have controlled that debt book. Does my noble friend not
agree that it would be far better for the youth of our country
and the future of our own Government if we put that debt book
back on to a public works loan board or something equivalent? The
level of intergenerational unfairness in this country is
outrageous, and we are fuelling it. It is ridiculous.
(Con)
I am afraid I cannot agree with my noble friend. The debt
repayment levels are dependent on income, and, as I said to the
noble Lord, , we expect that under the new
plan 5 loans 61% of new full-time borrowers will repay their
loans in full, with the balance being subsidised by the taxpayer.
A recent graduate on a starting salary of £26,000 will repay £7 a
month.
(LD)
My Lords, the student loan system is renowned for bad repayment
rates and, as has just been mentioned, high interest rates. Would
it not be the right time to get some system that the Government
back and is on the government books? That is what needs to be
done to get us away from the accounting procedure. It is
ridiculous. I declare an interest as somebody who has a daughter
who is coming up to her finals.
(Con)
I think the noble Lord is aware that there is a cap on the
interest rate, but I remind the House that interest rates do not
impact on the income of borrowers. Repayments are a percentage of
income above a repayment threshold, irrespective of interest
rates.
(CB)
My Lords, on 18 March, on behalf of Hong Kong Watch, of which I
am a patron, I chaired a meeting here in your Lordships’ House
about the launch of a new report concerning the effect of
international fees on the children of some of the 160,000 BNO
passport holders who have arrived and been given such a welcome
in the United Kingdom. Will the Minister undertake to speak to
the right honourable , the Secretary of State,
about the letter she has now received pointing out the lack of
equity in charging BNO passport holders up to £50,000 each for
five years if they study medicine, or £25,000 a year if they are
at a Russell group university, and look instead at the Scottish
model and also at the position of EU students on pre-settled and
settled rates, who are able to qualify for home student fees
after three years?
(Con)
I would be delighted to talk to my right honourable friend the
Secretary of State, but, as the noble Lord knows, this is a
timing issue in terms of getting settled status. I appreciate
that there is a lag in that happening.
(Lab)
My Lords, what assessment have the Government made of the link
between graduate debt, which inflates the debt-to-income ratio,
and the inability of the younger generation to buy homes of their
own?
(Con)
I come back to my earlier answer: we have a system in which it is
very clear that above a certain threshold, 9% of income goes to
repaying part or all of a graduate’s debt. The overall package,
obviously, in terms of affordability of mortgages and housing, is
dependent on many issues, of which graduate debt is one.
(Con)
My Lords, the Government’s excellent recent reforms to the
student loan book have significantly improved its affordability
to the taxpayer, with less than a third now expected to be
written off. Given this, and given the funding crunch facing
universities—which will be worsened if the Government take a
hatchet to the graduate route, by the way—does my noble friend
the Minister agree with me that it is time to allow universities
to increase fees in line with inflation for those that can
demonstrate they are delivering great outcomes for students, as
assessed by the teaching excellence framework?
(Con)
As my noble friend touched on, the Government are trying to
balance, or triangulate, a number of things. One is affordability
for students, hence the freeze we have had for seven years on
fees. Another is addressing poor-quality provision—at the other
end of the issue from the one my noble friend raises—through the
new Office for Students regime. In relation to motivation, reward
and recognition for the highest-performing institutions, a review
of allowing indexation of fees based on the TEF is not under
consideration currently, but I will say that having a
high-quality teaching framework does allow for strong recruitment
and research income.
(CB)
My Lords, has the Minister considered the level of graduate
earnings currently and the threshold she refers to? Leading on
from the question from the noble Lord, Lord Johnson, in light of
those two parameters, have the Government thought of increasing
the level of fees so that those who go on to very high earnings
can pay a proportionate amount, making it more progressive than
the flat rate that now applies?
(Con)
Of course, those who go on to much higher earnings end up
repaying much more than those on lower earnings, but no
additional consideration is currently being given to the
suggestion from the noble Baroness.
(Lab)
My Lords, the Student Money Survey last September found that 18%
of students had used a food bank in the 2022-23 academic year, up
from 10% in 2021-22. The annual inflation rate peaked at 9.6% in
the year to October 2022, yet for the 2022-23 academic year, the
value of student maintenance loans for living costs rose by only
2.3%. What are the Government doing to ensure that students can
focus on their studies and not worry about how they are going to
feed themselves?
(Con)
I understand why the noble Baroness raises this point, and I am
aware of the concerns around affordability. We have continued to
increase the maximum loans and grants for living costs each year,
with the most support going to students from the lowest-income
families, and benefits for lone parents and disabled students. We
have made wider cost of living investments as a Government and,
in addition, have made £260 million of student premium and mental
health funding available for the 2023-24 academic year.
(CB)
My Lords, as ever, I declare my interest as a teacher. Does the
Minister agree with me that this is part of a wider conversation
that too many students these days are being sold the dream of a
degree, when they would be much better suited to the route of
education within a workplace or an apprenticeship?
(Con)
The noble Lord is right, and that is why we are focusing on
improving both the quality and the quantity of careers advice to
students at school. We are doing a lot of work through the Unit
for Future Skills to predict the skills needs and gaps in the
economy. At levels 4 and 5, as well as at level 6, being an
undergraduate level, there are tremendous opportunities for our
young people.
