Student Loans - Business, Innovation and Skills Committee Contents



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


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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Prepared 22 July 2014