Many student loans are not being repaid: MPs see bleak prospects for scheme

ALMOST half of the ex-students due to make repayments under the Government's student loans scheme cannot afford to do so, a Commons committee has revealed.

In his Budget, Kenneth Clarke, the Chancellor, said he was cutting student grants and widening the loan scheme, but a report published yesterday by the cross-party Public Accounts Committee found that:

Of 209,000 ex-students due to make repayments, about 83,000 are deferring under a clause allowing them a postponement because their gross income is less than 85 per cent of national average earnings.

A further 2,400 are in default.

Legal action has been taken against 842 ex-students.

Of pounds 376.7m loaned to students, only pounds 5.8m has so far been repaid.

The MPs' report paints a bleak picture of the prospects of the government-backed Students Loan Company, which was set up to administer the 'top-up' loans.

With numbers set to rise substantially over the next few years, MPs said they hoped the company had the resources to follow up defaulters. 'We look to the company to ensure that their information systems will be fully adequate to handle the substantial tasks which face them.' In 1990-91, its first year of operation, the company had 180,000 students on its books. In 1992-93, it estimates it had made loans to 524,000 - almost a three-fold increase. The loans become repayable in the April after completion of the course.

The MPs were critical of the way in which the company was set up. In particular, they accused the Department of Education of 'drip- feeding' the company with public money before its relationship with the Government had been formalised. 'We consider that departments should not, as a general rule, incur commitments and liabilities without specifying them and without establishing at the same time their own contractual rights.'

They also questioned the fees of Price Waterhouse, the City consultants who helped devise the scheme. The firm was awarded a contract worth pounds 2.6m after only 'limited competition'.

That fee later rose to pounds 3m and was based entirely on days worked. There was no incentive on Price Waterhouse to complete the work ahead of time. 'It is hard to measure whether those arrangements represented good value for money, since the totality of the work had not been subject to competition,' the committee concluded.

High cost of learning, page 30