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Government response to query about student debt

June 5, 2013

The analysis notes that the Education Committee of the Scottish Parliament asked the government for a clarification of the impact of the new system on poorer students, especially in terms of overall debt levels.  I had not been able to find the response to this query, so grateful to have had the link sent  to me – it’s here.

Relevant extract:
“110. The settlement suggests a move away from bursary and grant support to loans. The Committee recognises that this could be a more cost effective way of providing additional student support. However, it requests that the Cabinet  Secretary clarifies the impact on poorer students, especially in terms of overall debt levels and potential drop-out rates.
The Scottish Government is committed to keeping access to Scottish Universities free for Scottish domiciled students and rejects tuition fees however presented. Access to university should be based on the ability to learn, not the ability to pay. To this end, in August 2012 Ministers announced a student support package that was welcomed by the NUS as the best available in the UK.
Where loans are concerned,these are not without cost to the public purse. For every £1 spent on loans, approximately  £3 ends up in student pockets compared to a straight £1 for £1 with bursaries. Furthermore, the repayment terms are better than any commercial lender might offer, and no payments are due until the student is employed and, from April 2013, earning at least £16,365 per annum. Any loan outstanding after 30 years is  written off.
Accordingly, there is no adverse affect on the immediate financial well-being of the student at the time of loan. As before, by using loans instead of  bursaries more money ends up in student pockets while  they are studying which is why many financial advisers regard such student loan debt as “good debt”.
The consequence of all of this for students from poorer backgrounds is that they should be encouraged to consider higher education because of the support offered by the best financial package available in the UK, allied with the fact that they will not have to pay tuition fees. What is more, those from poorer backgrounds will see a greater proportion of the support provided in the form of a bursary, that is to say, a  non-repayable grant. For the poorest students, this will mean bursary support of £1,750 on top of a loan of up to £5,500. The benefit of this is that such students will have more certainty around how their total support package is composed, compared to e.g. students who are dependent on a parental contribution. We do of course recognise that irrespective of whether loan debt is regarded as “good” debt, students from poorer backgrounds may have a different perspective on debt and what it means compared  to their more affluent peers. Accordingly,we are working to ensure that the opportunities represented by  student loans are properly understood. “
Notes:
  • The repayment threshold is higher than the £15,795 quoted in my paper due to an inflation increase from April 2013. The repayment period  quoted is 30 years rather than 35 (the SAAS website and the SLC site are both still using 35, so there is a difference here which needs explanation).
  • The concept of “good debt” for student maintenance loans but not for fees is interestingly made explicit here.
  • “those from poorer backgrounds will see a greater proportion of the support provided in the form of a bursary” must be intended to be read as being in comparison with students from better off backgrounds, rather than year-to-year, given that in 2013-14 the proportion of support provided to these students as grant will fall, compared to 2012-13.
  • The certainty point is also interesting, although the position is not significantly  different for those at lower incomes from previous years, as no parental contribution was previously required at incomes below £25,000 (young) or £21,000 (mature).
  • The response does not provide any data on the impact of the switch to loan on overall debt levels for lower-income students, or possible effects on drop-out rates.
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