Student Loans - Business, Innovation and Skills Committee Contents

Conclusions and recommendations

Forecasting implications of the RAB charge

1.  The evidence that we have received, both in this inquiry and previous inquiries, suggests that there has been a persistent miscalculation of the Department's estimates of the RAB charge. The resulting holes in the budget are only just beginning to materialise. Forecasters, particularly HEPI, had and continue to have a more accurate picture of repayments. Despite this, the Department has ignored their concerns. We recommend that, as a matter of urgency, the Department conducts a full review of all the financial assumptions underpinning the Department's RAB model. (Paragraph 17)

Budgetary implications of the RAB charge

2.  We support the Chief Secretary to the Treasury's ambition of improving the incentives for managing the long term costs of new student loans, and encourage the Treasury to look for further ways to strengthen these incentives. However, we are concerned that the current arrangements may have an adverse impact on unrelated BIS budgets in the medium term. (Paragraph 21)

3.  In order to improve transparency and accountability, we recommend that the Department publishes HM Treasury's targets for impairments for student loans alongside reports against actual performance. (Paragraph 22)

Monitoring and reporting of the Student Loans Company against targets

4.  For the NAO to conclude that the targets set for the Student Loans Company by the Department may have been misleading is a damning finding. It is obvious to us that the Department must address this as a matter of urgency. (Paragraph 26)

Targeting repayments

5.  The NAO has highlighted under-performance in terms of the collection of loans and the need for an annual target of money collected in a year together with an explanation of any variance. We support that recommendation and look to the Department to set clear targets for the SLC as a matter of urgency and to publish the earnings and collection assumptions behind those targets. (Paragraph 30)

Graduates now living overseas

6.  The Government is finding it harder to collect from debtors who have moved abroad and the complicated structure of income-contingent loans adds to that difficulty. We therefore recommend that the Government assesses whether converting income-contingent debt to mortgage-style debt for borrowers leaving the country would aid collection of outstanding student loans. (Paragraph 41)

Absence of information

7.  It is clear from our evidence and that of the Committee of Public Accounts that the overall approach to collecting student debt lacks rigour. It is the case that the SLC is required to meet targets set by the Department and it is true that the SLC has met most of these targets. However, we conclude that the SLC's targets are not fit for purpose and need urgent review. (Paragraph 46)

International comparisons

8.  It is regrettable that the Government did not do more to learn from examples of best practice overseas. The Government should examine examples of good practice overseas, including in the United States of America, in order to assess whether elements could be incorporated into the working culture of the SLC. (Paragraph 50)

Removing the cap on the numbers of students

9.  The arrangements for the efficient collection of the student loan scheme are not working and the current system of 'debt' and 'repayment' is not being managed effectively. It is clear that an overhaul of the system is needed, especially in light of the Minister's assessment that the level of student debt will increase to approximately £330 billion by 2044. (Paragraph 54)

10.  The Student Loans Company should be fair but robust in fulfilling its duty to achieve value for money and must demonstrate a strategic shift to a more dynamic culture in its duties to achieve the best value for the taxpayer through the most efficient collection of repayments. The Department should assist with this by realigning the formal targets to demonstrate this expectation and drive through a change of culture. (Paragraph 55)

11.  The United Kingdom is approaching a tipping point for the financial viability of the student loans system and the removal of the cap on student numbers will put even greater pressure on the system. There is a need for an urgent review of the sustainability of the system. We recommend that, in its response to this Report, the Government must come back with a clear timescale for this review.(Paragraph 56)

Historical sale of the mortgage-style loan-book

12.  It is clear that the private sector can see a profit in collecting student loan debts that the Government cannot. These findings reinforce our previous conclusions on the performance of the SLC's debt collection. It also lends weight to the Minister's ambition for the Student Loans Company to be removed from this aspect of the student loan system for mortgage-style loans which may be extended to the income-contingent loans. (Paragraph 64)

13.  We recommend that the Department outlines what rate of repayment it was achieving on the £890 million of mortgage-style loans which have now been sold. This may then be used as a benchmark to consider the future sales of income-contingent loans. We further recommend that the Minister sets out the minimum level of performance he expects of the SLC in pursuing the income-contingent loans before he would consider moving all debt collection to the private sector. (Paragraph 65)

Terms and conditions

14.  The Minister has been clear in his public statements that the Department would not change any of the terms and conditions attached to the loans as a result of any sale. While it is the case that Ministers will retain the power to change the terms and conditions, this is not a new provision. We recommend that there should be no change in the terms and conditions of existing student loans without parliamentary approval. (Paragraph 69)

Proposed sale of the income-contingent loan-book

15.  The Government appears to have committed itself to the sale of the income contingent loans before it has fully assessed the financial viability of such a move. Demand for these assets is untested and without the introduction of a synthetic hedge would only realise around £2 billion of the £12 billion return expected by Government. While demand would increase with the introduction of a synthetic hedge, this would come with an additional long-term cost to Government, which has yet to be quantified. (Paragraph 78)

16.  The Government has told us that it has moved to the sale preparation stage with more up-to-date analysis underway. This analysis must produce a succinct but penetrative assessment of the market and we recommend that it be done as a matter of urgency. Without such an analysis, there is no guarantee that the Government will make any of the financial returns that it claims. We further recommend that if the Government proposes to introduce a 'synthetic hedge' or similar it must share its scenario testing and specifically publish its estimate of the best-case and worst-case costing scenarios for this policy. (Paragraph 79)

Linking the student-loans to the removal of the cap on student numbers

17.  Given that the Chancellor of the Exchequer has linked the removal of the student numbers cap to the sale of the income-contingent loan-book, we seek clarification from the Department whether the removal of the cap is dependent on the sale of the loan book. (Paragraph 84)

18.  If the policy is not dependent on the sale, the Government must set out in its response where it will raise the £5.55 billion between now and 2018-19 required to remove the cap without putting an additional burden on the taxpayer. (Paragraph 85)

Presentation of data

19.  The Government could have been clearer in the presentation of its figures on the policy of the loan book-sale and student numbers. We recommend that, in future, the Government clearly presents the net financial outcome of any such policy, rather than spreading the figures around different tables across large official documents. (Paragraph 88)

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Prepared 22 July 2014