Since first being introduced in 1990, student loans have increased drastically, going from £3,290 in 2012 to their current £9,000 per annum. But now the Office for National Statistics (ONS) has stated that its new accounting method for student loans would add over £10bn (specifically £10.6bn) to the UK government 2018 to 2019 deficit, making the total public sector borrowing jump from its current £24bn to £34.6bn. Although this figure may appear shockingly high, it is actually slightly smaller than the OBR’s initial estimate for student loan costs for the current year, this being £12bn. (Source: Guarantor Loan Comparison)
The OBR is expected to release an announcement soon detailing its plans for changes in the provisions of student loans throughout the country. These plans for reform from the OBR will most likely facilitate reactions from both the government’s sector for public deficit, and the UK’s ongoing debate into the way the country funds its students.
Partner at London Economics Gavan Conlon has analysed the recent reform in accounting method and the results that this will yield, stating: “The issue here is that the government has a deficit target, and whatever the ONS decides to do, that will affect the deficit.”
Student loans are currently accounted for the same as commercial loans; a financial asset with which the government can generate revenue from. However, student loans differ greatly from other commercial loans by the fact that repayments to this loan are only made once the borrower earns over a certain amount (this currently being £25,000), and after 30 years, if full repayment has not yet been attained, the remainder of the loan is written off. (Source: Payday Bad Credit)
The total cost for higher education tuition and maintenance loans in the UK is not a figure that is factored into the overall net borrowing for the public sector, however the interest generated from these loans are. This has created what the OBR refer to as a “fiscal illusion”, making the borrowing figures for the UK government look better than they actually are.
By making such reforms to the accountancy of UK student loans, whilst reducing the lengths of this “fiscal illusion” and furthermore the damaging impacts it could cause to the country’s economy, by placing this cost out in the open, it may now have to compete for finance with the country’s many other funded areas.
Professor of government practice at the University of Manchester Andy Westwood has stated that this reform to the new accounting method for student loans would mean that the UK government would have to create new, more effective methods with which to finance university and higher education equivalents.
Westwood states that this reform “opens the door to thinking about restoring teaching grants and restoring support grants for students from disadvantaged backgrounds, fixing part-time study, and if Augar was considering lower tuition fees then now he could do it. Or even support for students who don’t get anything at the moment, such as apprentices.”
Westwood further comments: “It opens up serious options in those spaces. It makes the government’s subsidy for higher education more obvious, and it allows ministers to say, do we want the subsidy to work in that way?”