Student loans system is collapsing, MPs warn

A current proposed sale would raise only £2bn rather than £12bn expected by Government, according to a Select Committee

MPs have called for an urgent review of the student loan system (Getty Images)

The student loans system is collapsing, MPs warn today in a damning Select Committee report.

They have called for an urgent review and slammed the Government for “a persistent record of inaccurate debt forecasting and a failure to collect student loans effectively”.

The report also warns of the danger of a multi-billion budget gap just a day after newspaper reports suggested Business Secretary Vince Cable will scrap the £12 billion privatisation of the student loan book in England and Wales.

Mr Cable told a meeting of the Social Liberal Forum: “The Government was considering the sale of student loans on the basis that it would reduce government debt. Recent evidence suggests this will no longer be the case.”

The select committee report backs up that view. It points out that the Government’s own commissioned analysis suggested that a current proposed sale would raise only £2 billion rather than £12 billion expected by Government.

MPs have told the Government set out the costs of the sale, as well as the benefits. Adrian Bailey, chair of the BIS select committee, said: “The student loans system needs urgent attention and it’s vital that BIS doesn’t further undermine the viability of the system by selling off the income-contingent loan book at a knock-down price.”

Given the uncertainty around the sale, the committee has called for the Government to set out how the £5.5 billion required between now and 2018-19 to avoid a budget gap caused by the Chancellor’s removal of the cap on student numbers will be raised.

The report also criticised “a lack of rigour in the collection of student debt” and that graduates working abroad find it too easy to avoid making payments.

It said that collection targets set for the Student Loan Company by the Department of Business, Innovation and Skills are not fit for purpose.

Mr Bailey said: “The Government’s estimates indicate the size of outstanding student debt will increase to more than £330 billion by 2044. With the prospect of a large potential black hole in the government's budget figures, Government need to get its act together and properly calculate how much of these student debts are ever likely to be paid back.”

Under the current student loan system, the Government loses around 45p on every £1 it loans out. Yet the committee said it found that BIS has a worrying record of miscalculating just how much it will lose on a student loan at the point it pays out.