£80bn: Rising cost of student loans that they will never be able to repay

At present, Department for Business, Innovation and Skills (BIS) estimates the unrecoverable outstanding debt to be up to £18 billion

The new report says that MPs have underestimated the amount that will be recovered from student loans (Getty Images)

The Government is seriously underestimating the cost of student loans that will never be paid back, a committee of MPs warns on Friday.

A report by the influential Public Accounts Committee (PAC) warns that ministers have consistently underestimated by about eight per cent the amount of debt that will be recovered from students.

At present, the Department for Business, Innovation and Skills (BIS) is estimating the unrecoverable outstanding debt at between 35 and 40 per cent, or up to £18 billion. By 2042, this will have grown to between £70 billion-£80 billion as growing numbers of students take out loans to cover tuition fees of up to £9,000 a year.

However, the report says: “Despite investments to improve the forecasts in recent years, the Department’s model for estimating future loan repayments still consistently over-estimates annual repayments by about eight per cent compared with the amounts actually collected.”

Margaret Hodge, who chairs the committee, said: “We don’t have confidence in [their] figures. We think that the value of student loans never to be repaid could be even higher.”

The committee also wants the Student Loans Company to get tougher in its approach to debt collecting, after it was unable to provide evidence on the whereabouts of more than 368,000 UK and foreign students who were still classed as owing money.

Martin Freedman, of the Association of Teachers and Lecturers, said the PAC report was “alarming”, and “paints a picture of a student loan system that is not only in a complete mess but is likely to get much worse”.

“With the Government freezing public sector pay increases, many graduates who go into teaching and social work and other public sector jobs will struggle to repay their loans month-to-month and will still never pay off the loan,” he added.

Liam Byrne, Labour’s Shadow Minister for Universities, said it was now “crystal clear that the system ministers have put in place is unsustainable and is going bust”.

A spokesman for BIS said: “The Government has an effective and efficient process for collecting student loans through the tax system resulting in high collection rates at low cost which we believe demonstrates value for money. We acknowledge that there is room for improvement in certain areas.”