Student Loans: A sustainable Model?

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Against a backdrop of a massive increase in the costs of the UK Government are incurring to borrow the money to finance student loans, are we about to see a complete collapse in our approach to financing further education?

We know many post-92 Universities who are over reliant on student fee income are struggling, now the government have admitted that they anticipate paying are 1.6 percentage points more in interest on its debt than the interest it charges on student loans (source: Institute for Fiscal Studies). This is a sharp contrast to the situation two years ago when the government expected to pay 1.4 percentage points less than the rate of RPI inflation.

What does this mean in real figures?

Some figures for you – this surge in government borrowing costs equates to an increase in the expected cost of student loans, including financing costs, of more than £10 billion per year. At the end of 2021, the government could have expected to earn a net profit of £3.2 billion on student loans from the 2023 university entry cohort. However, with today’s borrowing costs, the government can expect to make a loss of £7.3 billion i.e. the cost of every student starting University is being subsidised by us, the taxpayer.

  • How sustainable is this model in the long run?
  • What impact will this have on future student loans (and the national debt)?
  • Will the current model of financing higher education (both in student loans and in Universities who are reliant of these fees) start to become a political ‘hot potato’?

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