Student loans added to the national deficit

Student loans must be added to the national deficit, the Office for National Statistics has said, as it reveals eight in 10 graduates never repay in full. The new system, which comes in next autumn, will be a blow to the Treasury as it leaves a £12billion hole in public finances, according to forecasts.

STUDENT loans must be added to the national deficit, the Office for National Statistics has said, as it reveals eight in 10 graduates never repay in full.

The new system, which comes in next autumn, will be a blow to the Treasury as it leaves a £12 billion hole in public finances, according to forecasts.

The ONS is splitting loans into financial assets and government expenditure, breaking with the system where student loans do not count as government spending.

“The design of the system means much of this student loan debt will never be repaid and is therefore written off by the government,” said David Bailey, of the ONS. Because of this, people were asking if the money should be treated as government spending and not lending, he added.

The number of graduates who fail to clear their debt has almost doubled since 2011 when the government axed the old maintenance grants in favour of a loan system, according to the Institute for Fiscal Studies. Its analysis found the rise in tuition fees plus soaring interest rates meant higher earners could end up paying £40,000 in interest payments alone. Reclassifying student loans meant this year’s deficit, which the Office for Budget Responsibility recorded at £25.5 billion last month, will grow to £37.5 billion.

According to the OBR, only 38 per cent of interest charged to students will be repaid, meaning the remainder would probably be counted as government spending. Last year Theresa May ordered a review after it was felt Jeremy Corbyn’s pledge to abolish tuition fees won wide support from young voters in last year’s general election.

But universities fear this could pave the way for cutting tuition fees or capping student numbers.

Alistair Jarvis, of Universities UK, warned that taking these measures risked “throwing the progress that government and universities have made on social mobility into reverse”.