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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