Choices for decreasing the interest on student loans and reintroducing maintenance grants

Choices for decreasing the interest on student loans and reintroducing maintenance grants

In the Prime Minister called for an inquiry into the student loan system for higher education (HE) october. In this briefing note, we concentrate on two associated with more unpopular attributes of the present system. We explore government alternatives for decreasing the interest levels charged on student education loans, through the present degrees of RPI + 3% while learning and RPI + 0–3% (according to earnings) after making college, as well as reintroducing living-cost grants – which don’t have to be repaid – for students from lower-income families. This briefing note will be submitted as evidence for the inquiry.

Key findings

  • Good real interest levels on student loans raise the financial obligation quantities of all graduates but only raise the lifetime repayments of higher-earning graduates. Eliminating them will not affect up-front federal government spending it does slightly increase the deficit (due to the slightly confusing treatment of interest accrued on student debt in the government finances) on HE, but. More significantly, in addition escalates the long-run expenses of HE as a result of the linked reduction in graduate repayments.
  • Reducing the interest levels to RPI + 0% for all would lower the financial obligation quantities of all graduates. Financial obligation on graduation could be around ?3,000 lower an average of, while normal debt at age 40 could be ?13,000 reduced. Nevertheless, due to the link between earnings and fascination with the existing system, this cut would reduce steadily the debts for the highest-earning graduates the most: the wealthiest 20% of graduates would hold around ?20,000 less financial obligation at age 40 because of this policy, although the lowest-earning 20% of graduates could be simply ?5,500 best off when it comes to financial obligation held during the age that is same. Continue reading “Choices for decreasing the interest on student loans and reintroducing maintenance grants”