Education: Student Loans

Baroness Garden of Frognal Excerpts

Monday 3rd June 2013 Lords Chamber

[Lord Naseby]

To ask Her Majesty’s Government whether they have any proposals to privatise or reorganise the handling and repayment of student loans.

[Baroness Garden of Frognal]

My Lords, the Government continue to explore options for monetising student loans and launched a sale of the remaining mortgage-style student loans in March. Any future sale of income-contingent repayment student loans would take place only if it reduced the Government’s risk exposure to the loan book, represented value for money for the taxpayer and ensured protection of borrowers.

[Lord Naseby]

My Lords, is my noble friend aware that the selling-off of the earlier mortgage book is greatly welcomed? However, the current loan book now stands at close to an estimated £40 million and no fewer than 22% of students from overseas are either not paying or have disappeared, and that involves a figure of no less than £50 million. What are the Government doing about this failure to repay by students who have taken loans, not least because if no further action is taken, that figure of £50 million will rise well into the hundreds of millions due to the recent increase in student loans?

--- Later in debate ---

[Baroness Garden of Frognal]

My Lords, the Government are investigating ways of making repayments from overseas easier and of clamping down on those who evade their responsibilities, and we will introduce measures as soon as we can. It might be worth pointing out that of the total amounts of student loans, only 3% to 4% go to EU students.

[Lord Howarth of Newport]

My Lords, is the Minister aware that student loans in the USA, publicly subsidised but largely unregulated, are a means for the enrichment of banks and poor-quality higher education institutions that are permitted to make profits, whereas in the United Kingdom, the student loans system—designed by the Government and administered by the Student Loans Company, which the Government control—has, notwithstanding some flaws, been a source of fairness for society as a whole?

[Baroness Garden of Frognal]

Yes indeed, my Lords, and I can only be grateful that I am not standing here answering on behalf of the United States’ system—because I do not have a brief about that. The system was set up to be as fair as possible to the students whom we wish to encourage to go into higher education if they have the potential and aspiration to do it.

[Lord Forsyth of Drumlean]

My Lords, does my noble friend think that enough is done to make students aware that although they do not have to repay these loans until they have employment above a certain salary, the interest accumulates immediately? Many of them find themselves facing much larger bills than they imagined.

[Baroness Garden of Frognal]

One of the really important things, which my noble friend touches on, is that no student has to pay these fees immediately. They start being payable once the students graduate and are in a job where they are earning sufficient money to pay them back, and the payments are then proportionate to their income. However, my noble friend is right that we need to do as much as we can to make sure that students are fully clear about the undertakings they are taking on.

[Lord Bilimoria]

My Lords, have the Government done a survey regarding one effect of student loans—the fact that students will be burdened with a long-term debt of up £40,000 after they graduate? Has it deterred children from going to university, particularly those from family backgrounds where no one has been to university before? Are the Government comfortable that we have student loans of this magnitude while in Scotland undergraduates still do not have to pay any fees at all?

[Baroness Garden of Frognal]

The noble Lord mentions the burdensome debt that students are accruing, but I would again stress that they will begin to contribute back for what they have gained from their university education only after they graduate and are earning a salary. We will be monitoring the effect on students from disadvantaged backgrounds. I would also point out that there are very generous forms of mean-tested grants for students, while many universities have instituted all sorts of bursaries to try to make absolutely sure that no student feels disadvantaged because they come from a low-income family.

[Lord Stevenson of Balmacara]

My Lords, students who took out loans under the previous Government pay interest based on the base rate plus 1%—so it is currently 1.5%—whereas those who have taken out loans since 2012 will pay RPI plus 3%, currently amounting 6.3%. Does the Minister agree with the recent HEFCE report which suggests that the new financial system contributed to a 12% reduction in students entering HE last autumn?

[Baroness Garden of Frognal]

Those figures are not holding up as the noble Lord says, because substantial numbers of students are still applying for university. There was of course an increase last year when people applied early, ahead of the new scheme, but the figures we are getting back from the higher education authorities show that the numbers going into higher education are still holding up. We very much hope that the new fee structure will not be a deterrent; in fact, it may well help many of the students whom we most wish to attract to higher education.

[Baroness Brinton]

My Lords, given that the calculations for the new student loans scheme under the progressive tuition-fee scheme show that it would take a minimum of two to three years before the payments start to come in and therefore balance the system out, what plans do the Government have to review the new arrangements to make sure that they are on track?

[Baroness Garden of Frognal]

My noble friend makes a valid point. We are constantly monitoring and reviewing the system to make sure that it is providing a good deal, that it is fair and accessible for students and that it is a good deal for the taxpayer. We shall be monitoring it at regular intervals to make sure that it is still doing what we hope it will.

[Lord Christopher]

My Lords, in the event that there is a sale of these debts, will there be an embargo on the use of bailiffs?

[Baroness Garden of Frognal]

My Lords, it is not the company but the loan book which was launched in March; the sale of mortgage-style loans is currently out for tender and we do not know how it will result. I can assure the noble Lord that we shall be looking very carefully to ensure that any company that purchases these loans provides protection for the borrowers as well as a financial repayment.

[Lord Flight]

My Lords, a paper in the Library produced by the Government forecasts a major increase in defaults on student loans to 40% of the total. The two main causes appear to be non-payment by people from overseas—certainly not just Europe—and, more particularly, students not earning enough to meet the requirement to repay. Will the Government consider two options to address these problems? First, it is quite difficult to set up banking arrangements to repay from overseas. If there were standard arrangements such that someone earning dollars could automatically have a standing order to convert dollars into sterling and repay, it would make the admin easier. Secondly, could more attention be given to vocational training after which people’s pay is often higher and they get jobs more easily?

[Baroness Garden of Frognal]

The answer to my noble friend’s last point is yes. However, his point on vocational training is slightly wide of the Question that we are discussing. Most of the loans from the Student Loans Company go to UK-based students or students from other EU countries. We have set up much more effective systems for ensuring that payments come through from bank systems and other assurances. He is absolutely right that most of the people who do not repay are those who go into very low-paid jobs. However, the percentage of students who do not entirely repay their loans tends to be higher than the percentage of the total value of the loans repaid. The cost to government will still be less than if the same money were given in the form of a grant.