Question to the Department for Education:

To ask His Majesty's Government what assessment they have made of the impact of interest rate charges on Government student loan financing, following research by the Institute for Fiscal Studies which showed that higher interest rates will add more than £10 billion per year to the cost of England’s student loan system.

Student loans are valued in the department’s annual accounts in line with the International Financial Reporting Standard 9 and set out in The Government Financial Reporting Manual which is attached.

Under which where future cash flows are discounted to measure the fair value of a financial asset, this should be done using the higher of the rate intrinsic to the financial instrument or the HMT discount rate. HMT set the discount rate annually based on a 10 year rolling average of gilt yields. For student loans the intrinsic rate would be the discount rate that gave a Resource Accounting Budget (RAB) or stock charge of 0%, so the HMT discount rate is used provided the RAB charge is greater than 0%. Should the HMT discount rate result in a RAB charge calculation giving a negative value then the intrinsic rate is used instead, meaning that that RAB charge will take a value of 0%.

The most recent forecasts for the student finance system can be found here: https://explore-education-statistics.service.gov.uk/find-statistics/student-loan-forecasts-for-england/2022-23.

The net present value of future repayments was calculated by discounting all future repayments at a rate of RPI -1.3% per year until the end of financial year 2029/30, and -0.2% per year from financial year 2030/31, to the same point in time as the loan outlay or loan balance. This is the discount rate for financial instruments set by HMT in 2022 and is intended to reflect of the cost of government borrowing. The most recent student loan forecasts using the 2023 discount rate set by HMT will be published at the end of June 2024.

The department has carefully assessed the impact of changes and published a full and comprehensive analysis in the Higher Education Reform and Consultation Document Equality Impact Assessment, which is attached.

The student loan repayment system under Plan 5 is progressive, with repayments being positively correlated with lifetime earnings. The highest earners make the largest individual contributions to the system overall, and the lowest earners are required to contribute the least.

Lower earners, whether male or female, are protected. If a borrower’s income is below the repayment threshold, they will not be required to make any repayments at all. At the end of the loan term, any outstanding loan debt, including interest accrued, will be written off at no detriment to the borrower. No commercial loans offer this level of protection.

The department will continue to keep the student finance system, including repayment terms, under review to ensure that it remains sustainable and delivers value for money for students and the taxpayer.