A parliamentary committee has called for the interest rate charged on post-2012 student loans to be reduced to 1.5%.
As reported by the BBC, the House of Lords economic affairs committee said that the current system of tuition fees and student loans is “deeply unfair”, accusing it of ripping off students and giving taxpayers poor value for money.
The committee also revealed evidence that the student loan book would grow to over £1 trillion over the next 25 years.
However, the Department for Education said its review of fees would “make sure students are getting value for money”.
Student loan interest rates for current students on Plan 2 loans (English and Welsh loans for those who started university in or after 2012) currently sits between 3.1% and 6.1%.
From the April after you graduate, if you earn less than £25,000, the interest rate is currently 3.1% – and is likely to go up to 3.3% in September.
If you earn more than £45,000, the interest rate is 6.1% – which will probably increase to 6.3 % in September.
There is a sliding scale of interest between 3.1% and 6.1% for those earning between £25,000 and £45,000.
England’s tuition fees are currently higher than in most countries after they were increased from £3,290 to £9,000 per year under the Coalition Government in 2012, and again to £9,250 last year under the Conservatives.
The hard hitting report from the committee has called for “immediate reforms” of the current student loans system, such as cutting interest rates on repayments and restoring grants for disadvantaged students.
The report also warns of the lack of funding for vocational training and claims that the apprenticeship system has been damaged by artificial targets.
Committee chairman and former Conservative minister, Lord Forsyth, said he was “astonished” by the findings and the report even accuses the government of using “accounting tricks” to conceal the real cost of higher education and ultimately increase debts for future generations.
Lord Forsyth said: “The accounting trickery attempted by the Government in 2012, in which the high rate of interest on student loans created the fiscal illusion that Government borrowing is lower than it actually is, has had a devastating effect on the treatment of students in England. It is unacceptable to expect future taxpayers to bear the brunt of funding today’s students.
“The thing that shocked me – and I thought I was pretty unshockable – was that I had not understood that by moving to a system of funding through loans, because of the accounting methods of the Treasury, it was possible for George Osborne [then chancellor] to appear to increase funding for higher education by £3bn but at the same time cut his deficit by £3.8bn.”
Lord Forsyth says this system has had “devastating consequences” as it has produced excessive interest rates.
Interest rates are set to rise again to 6.3% and the committee believes rates should be no higher than the rate at which the government borrows, which is currently 1.5%.
The report also notes that the conversion of means-tested grants into loans results in the poorest students graduating with the biggest debts.
Lord Forsyth added that the current repayment system has “screwed” those in middle income jobs such as nursing, who cannot pay off their debts as quickly as high earners such as lawyers or financiers.
Lord Forsyth also raised concerns about the current apprenticeship and part-time student policy, claiming that the student finance system has failed to recognise the need to improve vocational skills and to help those wanting to re-train.
Part-time student numbers have fallen by about 60% over the past decade, while the report alleges that the government’s stated target for three million apprentices was not the result of any strategy, but was chosen as an impressive number for a manifesto promise.
Lord Forsyth added: “There is clear evidence that what the economy needs is more people with technical and vocational skills. But the way that the funding for fees and maintenance operates makes it pretty well impossible for us to meet that demand.
“Maintenance support should be available for all students studying at Level 4 and above [qualifications beyond A Levels]. The means-tested system of loans and grants that existed before 2016 should be re-instated, and total support increased to reflect the true cost of living.”
A Department for Education spokesperson said: “We agree that for too long young people have not had a genuine choice post-16 about where and what they wish to study.
“That is exactly why we have overhauled apprenticeships to focus on quality and why we are fundamentally transforming technical education, investing £500m a year in new T-levels that will provide a high quality, technical alternative to A-levels.
“On top of this, we are undertaking a major review of post-18 education and funding, to make sure students are getting value for money and genuine choice between technical, vocational and academic routes.”
Prime Minister Theresa May announced an independent review of university tuition fees and student finance in February, with hopes that fees will be reduced to closer to £6,000 a year following the review.
However, the review is set to run for an entire year and the findings won’t be released until early 2019.