Graduates could face tougher repayments on their student loans

Jessica Morris
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Student loans could have tougher repayment terms (Source: Getty)

Students could face tougher loan terms amid rising uncertainty over long-term debt repayments, or else the government would be forced to cut funding for things such as apprenticeships or science.

Changes to the way the government covers unpaid student loans is squeezing the department for business innovation & skill's budget, according to a new report by the Higher Education Policy Institute.

The new risk-sharing agreement means it now shoulders part of the burden from higher student loan default rates which were previously the responsibility of the treasury.

And in order to plug the shortfall the department for business innovation & skills will need to by toughen up repayment terms such as freezing the repayment threshold or capping student loans at £9,000 a year.

But neither of these options are necessarily good news for graduates because toughening up repayment terms essentially shifts the financial burden onto graduates while capping loans will erode the quality of universities.

The government's estimate of the percentage of student loans which will never be paid back by graduates - called the resource accounting and budgeting charge - swelled from 27 per cent to 45 per cent over four years, amid disappointing data from the graduate labour market as well as the strength of the economic recovery.

"Uncertainty surrounds the estimations of future graduate repayments, but their estimated value has deteriorated markedly in recent years," the report's author Andrew McGettigan said.

"This decline generated a major challenge for the [Department for Business, Innovation and Skills] budget, which has faced a cumulative shortfall of perhaps £10bn over the last four years."

"Unplanned cuts for 2015-16 were only averted by changing retrospectively the accounting and budgeting conventions for student loans in 2013-14."

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