‘Tell students the taxpayer will clear their loans’

GRADUATES should be told their student loans will probably be wiped by the taxpayer to stop them being ‘ scared’ of their debt, top education establishments suggest.

The Russell Group, which represents elite institutions including Oxford and Cambridge, says too many former students fret over paying off their loans.

In reality, four fifths of recent graduates will never have to pay back the full amount, as they will not earn enough over their lifetimes – and all debts are wiped after 30 years, with taxpayers picking up the bill.

Some needlessly use inheritance to pay off their loans as they do not realise the debt will eventually be cleared.

The Russell Group says the stress is leading to ‘poor financial decisions’ in adult life and now wants the Student Loans Company to change its annual statements to graduates.

In partnership with MoneySavingExpert.com (MSE), it has produced a redesign which it hopes will be adopted. It has been tested on 6,000 students, graduates and parents, many of whom gave positive feedback. The suggested new statement would focus on repayments rather than overall debt.

It would use the phrase ‘graduate contribution’ rather than ‘repayments’ and would stress: ‘Contributions are always made in line with earnings and any amount remaining will be written off 30 years after graduation.’ The Russell Group said: ‘For the majority of university leavers, their outstanding “debt” is a mostly meaningless figure that bears only a loose resemblance to what they need to repay. However, this figure, and the interest added, is the primary data given on the current statement – leaving many unnecessarily scared.’

Today’s university leavers repay nine per cent of everything earned above a threshold – set at £25,725 – for 30 years, unless they clear the debt before that. So whether a graduate owes £10,000 or £50,000 – with a £30,000 salary, they repay £385 a year. It is predicted that 83 per cent of university leavers will keep paying for the full 30 years, before their debts are wiped.

MSE founder Martin Lewis said the current statement risked ‘wrongly deterring many from a future of higher education’.

‘It prompts fear and distress’