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BankruptcyNews
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 Posted - 02 July 2007 : 09:46:55
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Fear of extra years in debt if universities win rise in tuition fees
Graduates can expect to pay commercial rates of interest on their student loans, in a move likely to push the average student debt well beyond current levels of £30,000 and add several years to loan repayment times.
The move would inevitably follow if the Government bowed to growing pressure from universities to raise the £3,000 cap on tuition fees, university vice-chancellors said last night.
Professor Alasdair Smith, the outgoing Vice-Chancellor of the University of Sussex, said that once the cap on tuition fees was raised, it would no longer be fair to maintain the blanket inflation-only interest rate for all graduates, regardless of their earnings.
“The Treasury is giving a blanket subsidy which goes to students from very well-off backgrounds who go off to work for Goldman Sachs,” he said. “It would be much more logical to target assistance on students from disadvantaged background and graduates who go into low-paying professions in the public services.”
Such assistance might take the form of “golden hello” payments for graduates starting public service jobs to help them to pay back student loans.
There is concern, however, that requiring students to pay commercial interest rates on loans would hit middle-income families the hardest.
One vice-chancellor, who did not want to be named, said: “The people who will really get shafted are the students with parents who earn £30,000 to £50,000. They will be trapped because they will incur the full debt, but will not qualify for any of the assistance available to families on low incomes.”
The comments follow growing pressure from universities for the Government to raise the cap on tuition fees when the system is next reviewed in 2009. The vast majority of England’s universities charge the full £3,000, but leading research universities have complained that this is not high enough and want fees raised to at least £5,000 a year, with some arguing for £8,000.
Because raising the cap will require students to take out bigger student loans, this could result in a considerable extra cost to the Government as it subsidises the loans by pegging them to inflation. If tuition fees were raised to £5,000 a year, the projected cost to the Treasury of subsidising student loans would rise to £1.5 billion. Fees of £8,000 would push the cost to £2 billion, according to Professor Nick Barr, from the London School of Economics.
Sir Michael Sterling, Vice-Chancellor of the University of Birmingham, said he would like to see the cap lifted to create a market, with charges varying between courses and institutions. This would inevitably require an adjustment of the interest rate on student loans.
“The cost of the interest subsidy is enormous and there would need to be some more commercial rate but not one designed to make profit,” he said.
The result of ending or reducing the interest rate subsidy would be to increase by several years the time it took to pay off the loans. As the loan repayments are currently limited to a fixed percentage of a graduate’s income, monthly loan repayments would stay the same.
Students already face an increase in the term of their student loan repayments in September, when the subsidised interest rate rises from 2.4 per cent to 4.8 per cent, to reflect a rise in the retail prices index.
Student loans and tuition fees are repayable only once students graduate and are earning £15,000 a year.
A spokeswoman for the National Union of Students said: “As always, the graduates taking the longest time to pay off their loan debt #65533; the teachers, the social workers and the nurses #65533; will end up paying the most in this system.
“We fear that this will hinder attempts to widening participation. The absurdity is that those groups who are the most debt-averse, are also the ones who often need more money during the course and would end up accruing even more interest."
Source: timesonline.co.uk
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Fear of extra years in debt if tuition fees rise
