Alternative Student Finance

Michelle Donelan Excerpts

Thursday 15th July 2021 Commons Chamber

[The Minister for Universities (Michelle Donelan)]

I congratulate the right hon. Member for East Ham (Stephen Timms) on securing this important debate on sharia-compliant student finance. I also thank the hon. Member for Strangford (Jim Shannon) for being present today.

I assure the House that I understand the issue and the concerns held by some in the Muslim community about student finance, which were carefully and articulately delivered by the right hon. Member for East Ham. Islamic finance is well established in the UK. Financial institutions have been providing sharia-compliant financial services for nearly 40 years, and the UK is the leading western centre for Islamic finance. This Government continue to promote the growth of the Islamic finance sector, supporting domestic financial inclusion and our connections with key markets abroad.

As the right hon. Gentleman stated, in 2013 the Government announced their intention to introduce a form of student finance compatible with Islamic finance principles. That was followed by a consultation and a Government response in 2014, which confirmed the chosen model for sharia-compliant product. As he outlined, the Government took new powers in the Higher Education and Research Act 2017 to enable the Secretary of State for Education to provide alternative payments in addition to grants and loans, and appointed specialist advisers in October 2017 to design the product.

[Jim Shannon (Strangford) (DUP)]

I thank the right hon. Member for East Ham (Stephen Timms) for bringing this debate forward. I believe there should be no financial discrimination for our students; they should all be able to avail themselves of equal opportunity, regardless of religion. Does the Minister agree that ensuring that all students have the means to afford further education is one thing, but that because of their religion they may have difficulty doing so? Does she feel there is a clear equality issue to be addressed here, so that nobody is directly discriminated against?

[Michelle Donelan]

Of course this Government want our education system to be open and accessible to all, no matter what their religion, race or background. This Government have been considering the alternative student finance product very carefully, alongside their other priorities, as they conclude the post-18 review of education and funding and respond to the detailed recommendations of the independent panel chaired by Sir Philip Augar. We had intended to respond to the Augar review in full, along with addressing ASF, but the last spending review was only a year’s spending review and we intend to respond in full in due course. We decided to align a decision on the implementation of ASF with the outcome of the post-18 review, to ensure that the terms of any eventual package under ASF are the same as those for mainstream student support. We will provide an update on sharia-compliant student finance products when we conclude the post-18 review of education and funding.

Looking more broadly, I can assure hon. Members that this Government are committed to ensuring that higher education is accessible to all—everyone can then benefit, no matter where they come from, their religion or their race. That goes to the point made by the hon. Member for Strangford.

In 2020, the proportion of English 18-year-olds entering higher education had increased to a record entry rate of 37.9%. Even more encouragingly, the proportion of English 18-year-olds from disadvantaged backgrounds entering higher education had more than doubled, increasing from 11.3% in 2006 to 24% in 2020. In 2020, 18-year-olds from disadvantaged backgrounds were proportionally 80% more likely to enter full-time higher education than in 2009.

Looking at Muslim students in particular, we know from the latest published Higher Education Statistics Agency data that about 11% of the student population were known to identify as Muslim, with more than 62,000 first-year undergraduates in England doing so in 2019-20. There were also a further 28,000 Muslim first-year postgraduates in this academic year. In total, looking across all years, levels and modes of study, there were more than 200,000 students identifying as Muslim in the same academic year. Although these figures are encouraging, there is clearly so much more to be done, as the right hon. Member for East Ham has pointed out.

Participation in higher education is, of course, not the outcome in itself. We need to do much more to ensure that the whole system focuses on outcomes that students achieve so that we can put students, their needs and their careers ambitions first, be that in higher education, further education or apprenticeships. I want the whole of our post-education and education system to help people to fulfil their potential by equipping them with the skills and the knowledge to pursue their careers, be it as a teacher, electrician, lawyer, entrepreneur or nurse. That is at the heart of our reform agenda.

Last year, the Prime Minister announced the lifelong loan entitlement, which recognises the realities of a fast-moving economy and the changing world of work. People need and want to be able to study and train in different ways and at different times of their lives under a flexible system. That will make it easier for students to access courses much more flexibly throughout their life. It will be available for both modules and full years of study, at higher, technical and degree levels—levels 4 to 6. It will also enable people to fit study around work, family and personal commitments or, equally, to retrain and upskill as their circumstances and the economy change.

Turning to the existing student finance offer, I would like to take this opportunity to explain the existing loan offer and the other forms of financial support available. The current student finance system is not profit-making. Unlike commercial alternatives, student loans are available to all eligible students regardless of background or financial history. Loan repayments are linked to income, not the rate of interest or the amount borrowed. For undergraduate loans, repayments are calculated at a fixed rate of 9% of earnings above the payment threshold, or the weekly or monthly equivalent. Borrowers are protected. No repayments are required when borrowers’ earnings drop below the threshold, and any outstanding debt, including interest accrued, is written off after 30 years, with no detriment to the borrower.

No commercial loans offer that level of support and protection to the borrower, with income-contingent repayments and outstanding debt written off after the loan term ends. However, I reiterate that I understand and recognise the concerns of the Muslim community and those echoed by the right hon. Member for East Ham about these loans. That is very much why we have looked into this issue, and we pledge to report back.

Looking beyond student loans, the Government provide a range of non-repayable grants to assist students with particular needs. Grants are available to support childcare, where a student has an adult dependant or where a student is disabled. Universities also provide students with a range of support under their access and participation plans, which are designed to encourage participation from under-represented groups. Higher education providers wishing to charge tuition fees above the basic fee level of £6,000 must agree a plan with the Office for Students that sets out their targets and planned expenditure to improve access and participation. Through these plans, higher education providers deliver a range of support, including bursaries and grants to assist with fees and living costs, as well as activities such as school outreach, attainment-raising activities, summer schools and support targeted at key groups such as care leavers. These plans are designed to deliver greater and faster progress in accessing participation in higher education.

Looking at the financial system as a whole, a key aim for the Government is to ensure a sustainable balance of contributions towards the cost of the system between the student and the taxpayer, and to ensure that support is targeted most at those who need it. The Government’s contributions towards the cost of higher education are significant. More than half of the value of higher education undergraduate loans is forecast to be written off. This subsidy is a conscious investment in the long-term skills capacity of the people and the economy of this country.

As I mentioned earlier, the Government are still carefully considering our response to the post-18 review. I assure the right hon. Member and the House that alternative student finance is an important part of those considerations. I thank him for his passionate speech today and the individual stories that he shared. I would like to assure him and members of his community that, as we have previously committed to, we will provide an update on alternative student finance as we conclude the post-18 review of education and funding, and I would be more than happy to meet him to discuss this further.

Question put and agreed to.