1 BACKGROUND
FUNDING
HIGHER
EDUCATION
1. There is both a social and economic
benefit to having an educated population, and therefore Governments
often subsidise the cost to the student of higher education. In
the United Kingdom, the UK Government and the devolved administrations
do this by paying out loans to students with more favourable terms
and conditions attached to them than commercial loans.
2. In 1990 the UK Government issued
student loans for students across the UK, structured so that a
graduate paid back a fixed amount each month via direct debit.[1]
These are referred to as 'mortgage-style' loans because of the
structural similarities to mortgage debt. In 1998, the then Government
stopped issuing this type of loan and started issuing 'income-contingent'
loans in which the amount repaid was related directly to how much
the graduate earned. In both cases, however, graduates only made
repayments once their earnings reached a set threshold. The National
Audit Office (NAO) reported that between 1990 and March 2013,
the Student Loans Company (SLC) paid out £4 billion of mortgage-style
loans and £51 billion of income-contingent loans.[2]
3. Under the current system, universities
can charge up to £9,000 in tuition fees per year. The Government
offers every student a tuition fee loan of up to £9,000 and
an additional maintenance loan of up to £7,751 (depending
on the location of the student and their family income) per year
of study. The Government also offers a maintenance grant for students
from lower income families. These grants are not repayable, but
a student receiving such a grant has a corresponding reduction
to their maintenance loan.[3]
4. Responsibility for the administration,
maintenance and servicing of the student loan-book is split between
three bodies. The Department of Business, Innovation and Skills
(the Department) has overall responsibility for student loans.
The administration of student loans is the responsibility of the
Student Loans Company (SLC), which pays out maintenance loans
to students and tuition fee loans to universities on the behalf
of students. The majority of student loan repayments (around 82
per cent in 2012-13) are collected by Her Majesty's Revenue and
Customs (HMRC), from graduates who are employed within the Pay
As You Earn (PAYE) taxation system. The remaining amount is collected
by the SLC from graduates outside of the PAYE system (for example,
self-employed graduates and those working outside of the United
Kingdom).FIGURE
1: OVERVIEW
OF
THE
STUDENT
LOAN
COLLECTION
SYSTEM
Source: National Audit Office analysis
of Student Loans Company information
THE
NAO REPORT ON
STUDENT LOAN
REPAYMENTS
5. In November 2013 the National Audit
Office (NAO) published a Report into the student loans repayment
system. The Report focussed on the collection regime of the student
loan system and came to the following headline conclusions:
1. BIS should publish a transparent
and readily understandable forecast for the amount it expects
to be collected each year and report on any variance;
2. BIS does not currently set a
collections performance target to incentivise the SLC and HMRC
to maximise recovery of repayments;
3. BIS lacks sufficient information
on whether borrowers with no current employment record are earning
enough to repay their loans; and
4. Around 14,000 borrowers living
overseas are currently behind in their loan repayments. While
this group is small compared to the total number of borrowers,
the SLC could learn more from other organisations that collect
debt.[4]
The NAO concluded that the Department
"urgently needs to understand how the loan book is performing
and how it will perform, when the value of outstanding loans is
projected to increase substantially".[5]
1 For a summary of the development of student loans,
see Annex A Back
2
National Audit Office, Student loan repayments (November 2013),
para 1.5 Back
3
Government Website, 'Student Finance', accessed 16 June 2014 Back
4
National Audit Office, Student loan repayments (November 2013),
para 19a-19d Back
5
National Audit Office, Student loan repayments (November 2013),
para 19 Back
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