Students: Loans

Department for Education written question – answered at on 4 May 2023.

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Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

To ask the Secretary of State for Education, what assessment she has made of the potential merits of removing interest on student loans.

Photo of Robert Halfon Robert Halfon Minister of State (Education)

The student finance and funding system must provide value for money for all at a time of rising costs. It is important that a sustainable student finance system is in place, that is both fair to students and fair to taxpayers. Interest is an important part of this. If interest payments were removed, it would increase the burden to the taxpayer. In 2022/23 student loan interest reduced public sector net debt by around £4.8 billion according to published data from Spring 23 OBR Economic Outlook. The government has no plans to remove interest rates on student loans.

New students who start courses on or after 1 August 2023, will receive their loans on new Plan 5 terms. Students with Plan 5 loans will benefit from a reduction in the interest rate to RPI only. This change ensures that borrowers on the new Plan 5 terms will not repay more than they originally borrowed over the lifetime of their loans, when adjusted for inflation.

Repayments are calculated as a fixed percentage of earnings above the relevant repayment threshold and do not change as a result of the interest rate charged or the amount borrowed.

The student finance system continues to protect lower earners and borrowers who experience a reduction in their income. If a borrower’s income drops, so does the amount they repay. If income is below the relevant repayment threshold, or a borrower is not earning, then they do not have to make repayments at all. Any outstanding debt, including interest accrued, is written off after the loan term ends, or in case of death or disability, at no detriment to the borrower.

The department is freezing maximum tuition fees for the 2023/24 and 2024/25 academic years. This benefits student borrowers directly. By 2024/25, maximum fees will have been frozen for seven years. We believe that a continued fee freeze achieves the best balance between ensuring that the system remains financially sustainable, offering good value for the taxpayer and reducing debt levels for students in real terms.

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