Student loans proposed to be paid back earlier and with more interest‏

14^th June 2013

Joe Turnbull

Joe Turnbull

14 June 2013

A confidential report released under a freedom of information request recommends changing the terms of all student loan agreements taken out since 1998. The report was commissioned by the government and undertaken by giant investment banking firm, Rothschild. 

Some of the suggestions of the report include removing the cap on the amount of interest that is paid on student loans taken out before 2012. Currently, these loans have interest rates at either 1% over the banks’ base rate or at the Retail Price Index (RPI) measure of inflation, whichever of these is lower. Student loans taken out after 2012 have higher interest rates, at 3% above the RPI.

Rothschild’s proposals could see graduates paying back loans for their entire working life. The government is keen to privatise the entire student loan stock, estimated to be worth in excess of £35 billion. But the report by Rothschild suggests that the government should underwrite the risk for investors to make the student loans more attractive.

Another instance of public money underwriting banking risk is likely to be met with widespread public opposition, after the £500 billion bailout in 2008.

In a related proposal, the Treasury is thought to have suggested lowering the income threshold before repayments have to be made on all new student loans. As it stands, graduates who took their loans out after 2012 have to earn over £21,000 before they start paying them back. The Treasury is thought to want to reduce this to £18,000 but this has been met with fierce opposition amongst Liberal Democrat MPs.

Both proposals were greeted with anger by student and lecturer groups. University and College Union president, Simon Renton, said in a statement published on the UCU website:  “Once again this government is showing that it’s more concerned with helping investors make money than defending the interests of students and taxpayers. In its rush to make the loan book look profitable, it is willing to consider changing the repayment rates for students already repaying their loans or committing future generations of taxpayers to paying investors to buy the loans.”

Joe Turnbull