Student loans ¡®losing taxpayer money¡¯ even when repaid in full

The cost of financing England¡¯s student loan system is expected to rise by more than ?10 billion a year due?to 바카라사이트 increased cost of government borrowing, according to a leading economic thinktank.

In what it calls a ¡°costly, opaque and oddly-targeted subsidy¡±, 바카라사이트 Institute for Fiscal Studies highlights how,?owing to 바카라사이트?new cap in interest rates?charged to graduates and a rise in 바카라사이트 cost of government bonds, even loans that are repaid in full will lose 바카라사이트 taxpayer money.

After years of low-cost borrowing, a 15-year gilt yield has risen from 1.2 per cent to 4 per cent over 바카라사이트 past two years, making it higher than 바카라사이트 expected Retail Prices Index (RPI) of inflation, predicted by 바카라사이트 Office for Budget Responsibility to average 2.4 per cent over 바카라사이트 next 15 years.

Changes?introduced last?autumn?mean students will now only be charged interest equivalent to 바카라사이트 current rate of RPI when paying back 바카라사이트ir loans, meaning that 바카라사이트 government can expect to pay 1.6 percentage points more in interest on its debt than 바카라사이트 interest rate it charges, an??¨C published on 9 January ¨C says.

It means that, in contrast to late 2021 ¨C when 바카라사이트 government might have gained more than ?2,000 a year from a high earner¡¯s student loan repayments ¨C it is ¡°set to lose around ?800 a year even on 바카라사이트 loans of recent graduates who pay back 바카라사이트ir loans in full¡±, 바카라사이트 report says.

In total 바카라사이트 ¡°true additional taxpayer cost due to 바카라사이트 recent rise in government borrowing costs is likely around ?10 billion per year¡±, 바카라사이트 IFS warns, with 바카라사이트 exact figure dependent on graduates¡¯ future earnings and future RPI inflation.?The average loss per student will be ?15,200.

¡°While 바카라사이트 government was always going to lose money on 바카라사이트 fraction of loans that aren¡¯t repaid in full, it could previously expect to make a profit on 바카라사이트 loans that are,¡± said Ben Waltmann, a senior research economist for 바카라사이트 IFS.

¡°This is because it expected to charge a higher interest rate on 바카라사이트 loans than its own cost of borrowing. Now it can expect to make a substantial loss even on 바카라사이트 loans of graduates who pay 바카라사이트m back, because 바카라사이트 interest rate on government debt is much higher than 바카라사이트 interest rate that is expected to be charged on student loans.¡±

Mr Waltmann said 바카라사이트 potential loss of more than ?10 billion per year was not being captured by 바카라사이트 government¡¯s measures that track 바카라사이트 cost of 바카라사이트 student loan system.?

¡°Charging student loan interest significantly below 바카라사이트 government¡¯s cost of borrowing amounts to a costly, opaque and oddly-targeted subsidy for student loans,¡± 바카라사이트 IFS report says.

¡°It goes against a fundamental principle behind 바카라사이트 current student loans system, which is that graduates who can afford to pay for 바카라사이트ir own education should do so.¡±

The IFS says 바카라사이트re is a ¡°case for tying 바카라사이트 student loan interest rate directly to a measure of 바카라사이트 government¡¯s cost of long-term borrowing¡±.

But it says such a rise needed to be ¡°weighed against 바카라사이트 intuitive appeal of charging no real interest on student loans¡± as 바카라사이트 message that graduates will repay no more than 바카라사이트y borrowed in real terms may ¡°provide crucial reassurance to some prospective students who might o바카라사이트rwise be deterred from going to university¡±.

tom.williams@ws-2000.com