Student Loan Interest Rates

Lord Sikka Excerpts

Wednesday 27th March 2024 Lords Chamber

Asked by

[Lord Sikka]

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 (Baroness Barran) (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.

[Lord Sikka (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?

[Baroness Barran (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.