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Four in ten students may default on their loans



Four out of ten student loans may never be repaid, amid fears that university funding is becoming unsustainable.

The Treasury is said to be concerned that the new system – which sees students borrow up to £9,000 a year for their course fees – will not recoup its costs.

Officials anticipated that 28 per cent of loans would never be repaid. It is now understood that their estimate stands at 40 per cent.



Growing debts: New estimates from Treasury officials estimate that 40 per cent of university graduates will not be able to repay their loans

From last September, the maximum amount universities could charge for tuition was nearly trebled from £3,290 to £9,000. This leaves students with the prospect of £36,000 of debt for a four-year course, before living costs are taken into account.

And graduate salaries have fallen dramatically in recent years, impairing their ability to repay the loans when they start work.


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Ministers said it was necessary to put higher education ‘on a more sustainable footing’ – but some claim they fear the loans could increase the cost to the taxpayer in the long-term.

A senior source said yesterday: ‘The Treasury are all over this and are extremely worried about the viability of the system. They are taking a very long-term view but their estimate for non-repayment keeps going up.

‘It is not helped by the recession, which means graduate incomes are going to be lower than they hoped.’


Payback time: Since the cap on fees students face £36,000 in debt before living costs

An independent schools expert also raised fears that teachers are not giving pupils and parents enough information about the debts they could accumulate by going to university.

Barnaby Lenon, chairman of the Independent Schools Council and a former headmaster of Harrow, said students on four-year courses would have debts of up to £80,000 on graduation, once borrowing for living costs was included.

He added: ‘If you were an adult taking on this size mortgage you would go through a rigorous process which guarantees you understand what you are taking on. That is not happening with 17 and 18-year-olds.’

And Sir Steve Smith, vice-chancellor of Exeter University and a former president of Universities UK, said it was ‘inconceivable’ the Government could reopen the issue of university fees before the next election.

He said: ‘The only way you can save money is to cut student numbers going to university or alter payment terms. Either is a political no-go area before an election.’

Currently all UK and EU students can apply for a loan, paid to their university or college, of up to £9,000 which they pay back.

They can also get a loan for living costs of up to £5,500 – or £7,675 a year if they live in London.

Students must pay back the loans only when they earn more than a certain amount, which is currently £16,365.

For those under the fee system who will graduate in 2015-16, the threshold will be £21,000 and they will have to pay back their loan at a rate of 9 per cent of their earnings every year.

A Treasury spokesman said: ‘The Coalition transformed university funding to make it more sustainable, progressive and transparent.

‘According to the OECD, we have the most advanced student support system of any comparable country.’

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