May urged to cut 6pc interest graduates pay on student loans

THERESA MAY is facing calls to slash the interest rate on student loans, as she prepares to announce a sweeping review intended to ensure that tuition fees deliver value for money.

A report by the Commons Treasury select committee urges Mrs May to change the formula through which many graduates pay interest rates of more than 6 per cent.

It also says that an independent review, due to be announced this week by Mrs May and Damian Hinds, the Education Secretary, should consider the benefits of reintroducing maintenance grants to help poorer students.

The sweeping review of tertiary education is partly intended to address concerns that universities are routinely charging students the maximum of £9,250 per year regardless of the quality of their courses.

A Whitehall source pointed out that the vast majority of universities charge the maximum amount for course, adding: “The system wasn’t designed to work like this.”

Mr Hinds said future fees would be determined by “a combination of three things: the cost [to the university], to put it on, the benefit to the student and the benefit to our country and our economy.” Speaking to the Sunday Times, he said some courses “have higher returns for the student than others. It’s right that we now ask questions about how that system operates.”

In today’s report the Treasury committee, chaired by Nicky Morgan, the former education secretary, reinforces calls for a reconsideration of the structure of student fees, after 2012 reforms allowed most course providers to charge the full amount.

The MPs also state that there is “little justification” for applying high interest rates to tuition fee loans while students are still studying. The interest rate on many student loans is set at the retail prices index (RPI) – the higher measure of inflation – plus 3 per cent. That currently means a rate of more than 6 per cent, equivalent to £5,000 of interest being built up by students studying a three-year degree.

The Treasury committee report suggests that the use of RPI might mean that lower-earning graduates end up paying more for their degrees, as interest payments mount up over time. Applying above-inflation rates when students are at university is seen as a “punitive measure”, the MPs add.

It also calls for the Government to instead peg interest rates to the consumer price index (CPI) which “takes account of accommodation costs”.

Reforms to student fees in 2012 raised the maximum charge by £250 per year, but anticipated that there would be a difference in fees depending on the course offered.

In October, the PM told BBC1’s Andrew Marr Show that when the government raised student fees it had been expected there would be a “diversity in the system”, with some universities offering shorter, cheaper courses, rather than always charging the maximum amount.

‘When the government increased fees, it had been expected that there would be a “diversity in the system” ’