As MPs warn of a student loan tipping point, is the system now fundamentally broken?

Liam Byrne and Kristian Niemietz

Liam Byrne, shadow minister for universities, science and skills, says Yes.

Britain’s student finance system is as broken as the Liberal Democrats’ promise not to increase fees – which is what got us into this mess in the first place.

By trebling tuition fees to £9,000 per year, the government has overloaded young people – already facing a cost-of-living crisis – with a debt that they cannot afford.

Now the taxpayer is responsible for an eye-watering write-off, set to rise to £330bn by 2044.

We’ve almost reached the point where this new funding regime is costing more than the one it replaced – despite the huge cost to students. So yes, the system is broken.

The question is, can the government fix it?

Sadly not. It has already blown a black hole in the finances of the Department for Business, Innovation & Skills.

Profits have come before people with a 2,100 per cent increase in the amount of taxpayer money going to private colleges, and last week Vince Cable resorted to political infighting around selling off loan books.

Kristian Niemietz, senior research fellow at the Institute of Economic Affairs, says No.

A certain level of non-repayment is built into the student loan system, in order to protect graduates on modest earnings.

This does not indicate failure – the system is meant to work that way.

Indisputably, the level of non-repayment is now out of control, but that can be fixed.

One problem is that the earnings threshold above which ex-students are expected to repay their debt is far too high. With a threshold of £21,000, the monthly repayment of somebody earning £25,000 per annum is no more than £30.

The second problem is that the Student Loans Company (SLC) is not up to the job, losing track of too many graduates. Those who live abroad, for example, are almost certain to slip through the SLC’s net.

The task of issuing student loans should be delegated to private banks via competitive tendering, and the SLC abolished. The repayment threshold should be lowered to a realistic level, say £18,000.

Problem solved.

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