Education Bill

MEMORANDUM SUBMITTED BY THE DEPARTMENT FOR BUSINESS, INNOVATION AND SKILLS TO THE PUBLIC BILL COMMITTEE ON CLAUSE 70 and 71 (E 107)

Reference: EBCC/2011/Note 18

1. To aid the Committee’s consideration of the Education Bill, this note provides further information on the delegated powers in Clauses 70 and 71. It also includes illustrative regulations in relation to Clause 70.

Clause 70

2. Clause 70 will enable the Secretary of State to prescribe by regulations in relation to England, and to enable Welsh Ministers to prescribe by regulations in relation to Wales, a real rate of interest on student loans taken out by new students from September 2012 onwards.

3. If Parliament agrees to the change, we would propose to move quickly to set out in Regulations our intentions to charge a real rate of interest on certain loan balances, and introduce the variable rate of interest which will contribute to the progressive nature of the new support package.

4. In general, for full-time students, we propose to set the maximum interest rate at RPI + 3%. This will apply to loans held by students up until their Statutory Repayment Due Date (SRDD), which is the April after they leave their course. From that date interest will depend on income. For those earning £21,000 or less, the rate of interest will be RPI only. For those earning more than £21,000 and up to and including £41,000 the interest will increase on a gradual scale between RPI and RPI + 3%. Interest will apply at RPI + 3% for those who earn more than £41,000.

5. For part-time students, the interest rates applied will be the same. However, the SRDD will normally be the April following the third anniversary of the start date of the course, even if they continue to study. If they leave their course earlier or are on shorter courses the SRDD will be the April after they leave their course. Those earning less than £41,000 will benefit from the variable interest rates at that point, and only those earning more than £21,000 will be expected to make repayments.

6. There will be transitional arrangements for certain students who commenced studies before September 2012 and who are transferring or starting end-on courses in the same mode of study on or after 1 September 2012. They will remain under their existing student finance arrangements.

Clause 71

7. Clause 71 will enable the Secretary of State to prescribe by regulations in relation to England, and to enable Welsh Ministers to prescribe by regulations in relation to Wales, the maximum amounts for tuition that publicly-funded higher education providers may charge part-time undergraduate students in a given academic year. If Parliament agrees to the change, we would propose to move quickly to set out in regulations the Basic and Higher amounts for part-time students, corresponding to the maximum tuition charges set out already for full-time students. This will provide the foundation for a student support package that will ensure that part time students are on the same footing as full time students, and protected from having to pay any upfront tuition costs.

8. As we have already announced, only part-time students studying at an intensity of 25% or more would be covered.. We propose to set the Basic and Higher Amounts for part-time students at 75% pro rata of the corresponding figures for full-time students. This would mean a Basic Amount of £4,500 (75% of £6,000) and a Higher Amount of £6,750 (75% of £9,000).

9. We would expect higher education providers to charge students on the basis of the intensity rate at which the student was studying, pro rata with the full time rate.

10. As is the case for full-time students, the Government would make loans for tuition available to cover in full the cost of the tuition charges payable by part-time students up to those Basic or Higher Amounts.

Department for Business, Innovation and Skills

Annex A: Indicative Interest Rate Provisions for clause 70

Interest rate on the loans

1.-(1) Student loans for full-time courses will bear interest-

(a) at the rate set out in paragraph (3) plus 3%, until the end of the tax year in which the borrower-

(i) completes the course; or

(ii) leaves the course,

(b) after the period in sub-paragraph (a)-

(i) in a tax year in which the borrower’s income is £21,000 or less, at the rate set out in paragraph (3);

(ii) in a tax year in which the borrower’s income is more than £21,000 but not more than £41,000, at the rate set out in paragraph (3) plus a percentage equal to

0.00015 x (I – 21,000)

where I is the borrower’s income in pounds for that tax year; or

(iii) in a tax year in which the borrower’s income is more than £41,000, at the rate set out in paragraph (3) plus 3%.

(2) Student loans for part-time course will bear interest-

(a) at the rate set out in paragraph (3) plus 3%, until the earlier of-

(i) the end of the tax year in which the borrower    completes the course;

(ii) the end of the tax year in which the borrower leaves the course; or

(iii) the end of the tax year in which the third anniversary of the date of the start of the course occurs,

(b) after the period in sub-paragraph (a)-

(i) in a tax year in which the borrower’s income is £21,000 or less, at the rate set out in paragraph (3);

(ii) in a tax year in which the borrower’s income is more than £21,000 but not more than £41,000, at the rate set out in paragraph (3) plus a percentage equal to

0.00015 x (I – 21,000)

where I is the borrower’s income in pounds for that tax year; or

(iii) in a tax year in which the borrower’s income is more than £41,000, at the rate set out in paragraph (3) plus 3%.

(3) The rate is the greater of-

(a) 0%; or

(b) an amount equal to the percentage increase between the retail prices all items index published by the Office for National Statistics for the two Marches immediately before the commencement of the academic year.

(4) Interest is calculated on the principal outstanding daily and is added to the principal monthly.

March 2011