Student debt rising to more than 50,000, says IFS – BBC News

Image caption Students will have accrued 5,800 in interest charges before they graduate, says the IFS

Students in England are going to graduate with average debts of 50,800, after interest rates are raised on student loans to 6.1%, according to the Institute for Fiscal Studies.

Those from the poorest backgrounds, with more loans available to support them, will graduate with debts of over 57,000 says the think tank.

Interest charges are levied as soon as courses begin and the IFS says students on average will have accrued 5,800 in interest charges by the time they have graduated from university.

Report author Chris Belfield describes the interest as “very high”, but the Department for Education declined to comment on the increase in charges.

Universities Minister Jo Johnson says that more disadvantaged students than ever are going to university.

The study from the IFS compares England’s current student finance system introduced in 2012, where fees were raised to 9,000, with the previous system introduced in 2006, when fees were about 3,000.

Because the level at which graduates have to repay also increased, to 21,000, it meant that those with low incomes were initially better off, says the IFS.

Rising charges

But the repayment threshold has been frozen since 2012 – and the IFS report says that graduates on all income levels are now worse off than under the previous fee regime.

Students from disadvantaged backgrounds can borrow more in maintenance support – but because these are now loans rather than grants, it means that the poorest students will leave with the highest debts.

The increase in interest rates and tuition fees going up to 9,250 per year will push up the cost of loans for all graduates – and higher earners will pay interest of 40,000 on top of the amount borrowed.

Mr Belfield says the 6.1% being charged on loans is “very high compared with current market rates”.

But if loans are not repaid after 30 years, they are written off – and the IFS forecasts that about three-quarters of students will not pay off all their debt, despite making payments from their earnings into their 50s.

The government also wants to sell off student loans to private investors – with some pre-2012 loans having already been put up for sale.

The report says there have been two main beneficiaries from the current fee system – universities and the government’s finances.

Universities have increased per-student funding by 25% since fees rose to 9,000, says the IFS, after taking into account the money they no longer receive directly from the government.

Last week, Mr Johnson warned against university leaders being paid excessive salaries – with some vice-chancellors earning over 400,000.

Election battleground

Replacing grants with loans and freezing the earnings threshold for repayment has made the system less expensive for the government.

The IFS says that the lowest-earning third of graduates are paying 30% more than in 2012, when the 21,000 threshold was introduced.

The switch in costs to students will mean cutting government borrowing by 3bn in the long term.

Tuition fees became a high-profile issue during the general election – with Labour promising to scrap tuition fees.

The big swing to Labour in university seats was seen as suggesting that young people were concerned about tuition fees – and plans for them to begin rising each year.

Senior Conservative minister Damian Green, speaking last week, recognised that fees had become a big issue, particular for young voters, and that universities needed to show they were providing value for money.

The IFS analysis says scrapping tuition fees would cost 11bn per year. But it also warns that continuing on the current trajectory of “high debts, high interest rates and low repayment rates” would mean problems both for “graduates and the public finances”.

The report says that the overall trend has been to increase university funding, reduce government spending on higher education, “while substantially increasing payments by graduates, especially high-earning graduates”.

Mr 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.”

Read more: http://www.bbc.co.uk/news/education-40493658