Student debt will soar to £200bn, official figures show

Coalition's new system of tuition fees will leave crippling legacy to future generations

Sarah Morrison,Brian Brady
Sunday 21 August 2011 00:00 BST

The crippling legacy of the coalition's new system of tuition fees is laid bare today, with a government analysis that shows Britain will be loading almost £200bn of debt on to the students of the future.

As tens of thousands of teenagers attempt to secure a degree place before tuition fees rise towards £9,000 a year, a devastating official forecast of the price they will pay for a university education estimates that total student debt will rocket to £191bn over the next four decades.

The analysis, compiled by the Department for Business, Innovation and Skills (BIS), concedes that the fee increase, from a maximum of £3,290 a year, will add £124bn to the burden of personal debt by 2047.

Last year, before the changes were finalised, BIS estimated that total student debt will stop rising in 2027, having peaked at £67bn. The figures were obtained by the Liberal Conspiracy website following a Freedom of Information request.

The total of student debt at its peak is equivalent to more than a quarter of Britain's national debt, or the entire welfare bill. It also dwarfs the £136bn gross mortgage lending during all of 2010. But even when the debt is at its height, the department expects to recoup less than £11bn a year from lenders.

Professor Les Ebdon, vice-chancellor of the University of Bedfordshire and chair of the million+ group of new universities, called the situation "unstable" and compared the new system to a "house of cards built on borrowed money".

A poll in The IoS today reveals that concerns over debt are already having an impact, with two out of three young people saying that they know someone who will be put off going to university by the imminent increase in tuition fees to a maximum of £9,000 a year.

Economists, academics and student leaders last night warned that the true cost of the loans could be even higher, and claimed that the rising bill could restrict the number of university places in the future.

The new "graduate contribution scheme" requires taxpayers to bankroll a third of the cost of the loans, to subsidise interest rates and cover defaults and write-offs. BIS claims it has factored in a non-payment rate of 30 per cent. This has been derided as too optimistic by several experts, as independent research suggests around 37 per cent of graduates will not pay back their loans in full.

Bahram Bekhradnia, director of the Higher Education Policy Institute, said: "This is worrying as, if costs to the Government are higher than anticipated, then taxpayers of the future are going to have to pay more in taxes to fill that gap. We are talking about real money and a lot of it."

Nicholas Barr, professor of public economics at the London School of Economics, said the new system was "badly designed and... incredibly expensive to the taxpayer". Professor Barr, who contributed to the Browne review into student finance, which paved the way for the latest changes, added: "It will cause student numbers to remain capped. The 30 per cent non-repayment figure is based on optimistic assumptions of fee-level and the rate of growth."

The NUS president, Liam Burns, said: "All the Government has done is simply succeed in getting the debt off its books and placed it on exactly the same people in 40 years' time."

Ministers survived a revolt by Lib Dem MPs to force through the increase in fee levels last autumn, as a way of helping universities balance the books amid falling financial support from the Government. The move sparked violent student protests.

The IoS revealed that the Government feared three-quarters of graduates would spend decades paying off loans and interest – without ever settling their debts. The latest BIS projections assume loans will average just over £7,500 a year, but the Office for Fair Access estimates the average fee to be £8,393, with more than a third of universities set to charge the maximum of £9,000.

Gill Wyness, who last week authored a CentreForum think-tank report calling for cheaper degrees, said: "It seems the department has underestimated the amount students will have to pay, and the debts they will have at the end of their studies."

But the universities minister, David Willetts, said the new reforms meant there were now "no financial barriers" stopping poorer youngsters entering university. He added: "While graduates will have to make a greater contribution towards the cost for their degree, there are no more up-front fees, more financial support will be available while studying, as well as a more generous package of scholarships and fee waivers."

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