asked Her Majesty’s Government:
What is the average time for recovering student loan repayments.
My Lords, we estimate that a student who entered higher education in 2006-07 will take an average of around 13 years to repay their student loan. The repayment period is counted from the April following the year of graduation. The calculation is based on assumptions about lifetime graduate earnings derived from the British household panel and labour market surveys. The calculation takes account of gender, age and periods spent unemployed or inactive for other reasons.
My Lords, I thank the Minister for that Answer, which was obviously a theoretical one. Does she agree that we are in difficult times and that huge student debts, insecurity in the job market, pension commitments and the ballooning cost of living place a recent graduate’s financial future on very rocky ground?
My Lords, we need to be clear about the nature of the student loan facilities that have been made available by the Government, which are on a different basis from commercial loans. A student who is earning £18,000 is expected to repay around £22 a month for their loan. I am sure the noble Baroness will agree that when we consider the benefits of higher education, which I am sure everyone in the House accepts are highly significant and very important, it is not unreasonable to expect students who benefit significantly from such education to make some contribution towards the costs, as indeed the Government have been doing in the past 10 years by significantly increasing funding for higher education.
My Lords, does my noble friend agree that income-contingent loans have been a great advance on previous kinds of financing for students and have advantaged a lot of students who go on to higher education? Does she further agree that for many families this is the first generation going into higher education and they find the whole way of applying somewhat complicated? Do the Government have any plans to simplify the process in order to help people to apply for university?
My Lords, I thank my noble friend for that. He is right to point out that students from what are sometimes described as non-traditional backgrounds can find bewildering the process of applying for university and looking for finance. That is why the Government have invested significantly in programmes such as Aimhigher. There has been a year-on-year increase in applications from students from disadvantaged backgrounds, but we are also mindful of the need to do more. The Student Loans Company, as instructed by the Department for Innovation, Universities and Skills, is involved in a major overhaul of the information, advice and guidance available to students, and we are aiming to have a streamlined application process for university and finance online by 2009.
My Lords, have the Government paid attention to the fact that a student loan can affect one’s eligibility for a mortgage? To my knowledge, young students are affected by that. What are the Government doing about that?
My Lords, the Council of Mortgage Lenders has been clear that students should not be prevented from making successful applications for mortgages because of their student loans. We need to be clear that student loans concern the ability to pay according to income and not the amount of outstanding debt. That is an important difference from the old mortgage-style loans that were introduced before this Government came to power.
My Lords, we all know that we may well be heading for a quite tricky economic situation. Surely that is an argument for looking at this scheme more thoroughly. Is the Minister aware that recent graduates are charged 4.8 per cent interest on their loans and yet, in employment, many of them receive pay increases of 2.5 per cent or less?
My Lords, I am very aware of the interest rate that is charged on the outstanding debt that students have. We need to be clear about the difference between the interest rate on the outstanding debt, which is in line with RPI—it will be set again in September in line with RPI for March this year, so students will see a reduction in the interest charged on the outstanding debt—and the interest rate on repayment, which will always be 9 per cent above the £15,000 threshold. For example, the £18,000 earner will pay only 9 per cent, which is £22 a month. So we are talking about two kinds of interest and the repayment interest rate is 9 per cent.
My Lords, does the Minister recognise that none of the £22 a month paid by the £18,000 earner will actually go towards repayment? Indeed, the debt will be accumulating at that point because with a debt of something like £20,000, which is what students will have in future, one will hope to be earning £25,000 before one starts repaying the debt, as distinct from just meeting the interest rate payments which, I accept, reflect the rate of inflation. However, at 4.8 per cent one needs to repay more than £500 a year before one gets anything back.
My Lords, the key point is that graduates have an increased earning potential of at least £100,000 over their lifetimes in comparison with students who attain a couple of A-levels. It is about students putting something back because they benefit significantly from higher education.