Students: Loans

Innovation, Universities and Skills written question – answered on 21st April 2008.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

To ask the Secretary of State for Innovation, Universities and Skills what estimate he has made of the revenue which would be received by the Exchequer from increasing the interest rates charged on student loans by (a) 0.1 per cent. and (b) 1 per cent. in 2008-09.

Photo of Bill Rammell Bill Rammell Minister of State (Lifelong Learning, Further and Higher Education), Department for Innovation, Universities and Skills

The principle behind student loans is that borrowers repay broadly the same amount, in real terms, as they have borrowed. The interest rate on student loan balances is therefore fixed at the rate of inflation.

Increasing the interest rate on student loan balances by 0.1 or 1 per cent. above inflation would provide no immediate additional revenue to the Exchequer. Repayments are based on earnings and not the amount borrowed, so increasing the interest rate charged to borrowers would not impact on receipts in 2008-09, although it would impact on receipts in the future.

Under resource accounting, the Government accounts for the full lifetime cost of making a student loan in the year that loan is made. Any change in the way the interest rate was calculated would increase or decrease those costs.

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