'Student Finance 2012 changes – it's time to tackle the ignorance' blog discussion

MeGrumps

I think Martin has made a good case that many/most will not repay their loans in full. However, that begs another question. How much will that cost the Exchequer? I presume the Treasury have cranked the numbers and it would be very interesting to hear what they came up with. I fear that this is just another way in which the government is kicking the debt can down the road for future generations to have to pick up. Does anyone know any estimates of the cost of unpaid loans?

MSE_Martin

MeGrumps wrote: »

I think Martin has made a good case that many/most will not repay their loans in full. However, that begs another question. How much will that cost the Exchequer? I presume the Treasury have cranked the numbers and it would be very interesting to hear what they came up with. I fear that this is just another way in which the government is kicking the debt can down the road for future generations to have to pick up. Does anyone know any estimates of the cost of unpaid loans?

While that's not my expertise. I think the answer here is yes and no.

Yes more course on £9,000 are likely to mean a lower number of graduates repaying in full than predicted.

Yet no compared to current system. Right now most money govt gives to unis is via a block grant - which is now repayble.

In the future that's being replaced via loans to students that are repayable and with real rates of interest on top.

So even if the repayment % drops because so much more is repayable and because the interest is now being serviced for the exchequer, the new system is likely to be much better for the treasury (note this is not an argument in favour of the system as its not all about whether its good or bad for treasury - just an explanation.)

MeGrumps

If I understand you correctly, the loans are displacing block grants and therefore will not be bad for the treasury. I suspect that the loans do not appear in the annual Deficit though as they are loans with supposed solid collateral. However, your figures show that these loans will not be repaid in full and so the treasury is pumping money into the economy today under the pretence that it will all be repaid in future. This is a form of Quantitive Easing that will not show in the Deficit. I see all QE as a way of kicking the Deficit can down the road for future taxpayers to service.