Students will owe £8.6bn in loan interest alone within five years, official figures show
There has been growing criticism of the government’s failure to act on sky-high interest rates – currently 6.3 per cent – on university debts
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Your support makes all the difference.Students will owe a staggering £8.6bn in interest alone on their loans within five years, government figures show – almost double the current debt.
The burden is set to mushroom amid growing criticism of the government for failing to act on sky-high interest rates – currently 6.3 per cent – charged on the money borrowed for studies.
Almost all the increase will fall on students who started their courses after David Cameron’s government trebled fees to £9,000 in 2012, whose debts will more than double from £3.5bn to £7.6bn.
Labour, which uncovered the figures, seized on them as fresh evidence of the need to scrap tuition fees altogether, arguing they were “pricing young people out of education”.
“Under the Tories and their broken student loan system, thousands of students are being burdened with vast levels of debt that they will never be able to repay,” said Angela Rayner, the shadow education secretary.
“With almost half the cost of the current broken system being picked up by the taxpayer, the government should stop cooking the books and start being honest with the public about how we fund higher education.”
The surge in loan interest has become an aspect of Britain’s controversial university funding system almost as controversial as the level of fees themselves.
The figures are revealed as teenagers prepare to receive their A-level results this week, with universities scrambling to fill courses through the clearing process, The Independent has reported.
Students already leave university owing about £6,000 in interest accrued – part of overall debts of more than £50,000 – and pay tens of thousands in interest over their lifetimes.
Currently, interest is added to everything students owe – from the moment the loan is taken out – and charged at 3 per cent above the RPI measure of inflation until graduation.
That means an eye-watering 6.3 per cent in the last academic year, although it will fall slightly to 5.4 per cent from next month because of lower RPI last March.
After graduation, interest is added at RPI for the lowest-earning students, rising gradually back to RPI plus 3 per cent for those on salaries of £46,305 or more.
The statistics, published by the Department for Education, forecast that the amount made available in loans will grow from £16.5bn this year to £20.7bn in 2023-24.
Meanwhile, the amount owed in interest on those loans will balloon from £4.4bn to £8.6bn over the same period.
Last year, the architect of higher fees, Conservative peer David Willetts, called for interest payments to be scrapped so loans could be frozen “in cash terms”.
In May, Theresa May welcomed a report calling for an end to interest on loans while studies continue, while recommending it continue at inflation-plus 3 per cent after graduation.
The study, led by businessman Philip Augar, also called by fees to be slashed to £7,500 a year and for maintenance grants to be restored for low-income students.
However, the outgoing prime minister acknowledged the controversy would be a matter for her successor.
And Boris Johnson, despite a blizzard of spending announcements for the police and the NHS, and tougher measures on crime, has done nothing to indicate that student fees will be a priority.
The Augar proposals to alleviate fees and interest attracted its own critics who argued that low and middle earners, such as nurses and teachers, would be hit the hardest.
It would be funded by repayments starting earlier and lasting much longer – over 40 years instead of 30 – so lower earners would still be paying back their loans in their sixties.
Ms Rayner said the solution was to scrap fees and restore maintenance grants for disadvantaged students “so that access to education is a right for all, and everyone can reach their potential”.
She pointed out that only 17 per cent of students are forecast to fully pay back their loans – while writing off debt after 30 years means taxpayers will bear the cost of 47 per cent of it.
The Department for Education has been asked to respond to Labour’s criticisms of its debt projections.
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