The growth of student debt in Scotland

As already noted, very large amounts of student loan are being brought  into the Scottish system to support student living costs.  This post puts the recent budget figures into their longer term context and draws on recently-published data from SAAS covering the last decade.

Recent trends

• In 2009-10, the last year in which Young Students Bursary was increased roughly in line with inflation, SAAS data shows that students took out  loans worth £192.7m (£211m at current prices).
• The budget that year for “student loans net new lending” was £132.7m (£145m at current prices). The budget figure is net of repayments made by graduates, so is lower than the total of actual new borrowing. This will be a main reason for the difference between this and the figure produced by SAAS.
• The budget for “student loans net new lending” in 2012-13 estimated was £241.3m (£247m at current prices).  Actual new borrowing was £249.9m (£256m at current prices).
• The recently-published budget plans for  “student loans net new lending”  stand at £468.3m in 2014-15 (£459.6m at current prices) and the same again in 2015-16 (£451m at current prices).  As in the past, expected actual borrowing can assumed to be higher.

The budget figures imply a tripling of expected “net new lending” by government to students in real terms between 2009-10 and 2015-16, from £145m to £451m, with lending set to double over the two years from 2012-13 to 2014-15.

Given that “net new lending” is lower than total new borrowing, by 2015-16 it appears likely that on current Scottish Government plans students will be taking out in the region of £0.5 billion in loans each year.

The longer term pattern

The first graph in this document Student loan graphs shows:

• the total amount of student loan taken out each year between 2003-04 and 2012-13.  All figures are at current prices.  The figure  falls quite quickly from 2003-04 (an influential factor here was the phasing in of YSB for new students and a broadening of entitlements to YSB from 2005-06).  It then rises again, until in 2012-13 total loan is at a similar level in real terms to 2004-05.
• a similar, but less steep, fall and rise in the average amount of loan taken out, with the 2012-13 figure again close to the one 10 years previously.  The effect of the graduate endowment came and went over a small number of years mid-decade.

• a similar pattern when the total value of student loans taken out is divided by the total number of Scottish-domiciled students, including those who did not take out a  loan – except that on this measure debt has stayed lower relative to 2003-04. The next graph shows why.

The second graph shows that a third of students took out no new debt in 2012-13, compared to a quarter ten years before.  Some of the total  population may have been ineligible for a loan.  However, the possibility suggests itself from these figures that more students than before are now managing to avoid any debt, while  the remainder are absorbing an increasing amount of debt.  The 2013-14 figures, not availble until next year, will show what sort of impact the reductions in grant have had on this emerging gap  betwen students with little or no debt, and the remaining part of the student population, on which rising levels of loan appear to be becoming concentrated.

Things to note

Not all this extra borrowing will fall on low-income students.  The government has also increased the availability of loans for those at higher incomes and for post-graduates.  However, as individuals low-income undergraduates will face the highest student loan levels, a situation unique to Scotland within the UK.  In other jurisdictions, much greater use of maintenance grants for the poorer students and the need to borrow for fees at higher incomes produces the opposite effect: see the graph here.

A significant cause of this shift to loans is the Scottish settlement under the Barnett formula. Cash funding is under pressure, while there has been a large increase in the availability of loans.  As this research briefing from the Scottish Parliament Information Centre (SPICe) explains: “Changes to the UK government’s policy on fees and loans led to a significant consequential uplift in the Scottish Government’s “Cost of providing student loans”  DEL line. This enabled Scottish Ministers to introduce the minimum income commitment for Scottish students through increased access to student loans, focussing on improving access to maintenance loans rather than loans for fees.”

Prior to this increase, it could be argued that foregoing grant was worthwhile, as it paid for the release of additional loan, to meet the concern felt by many students about hardship and inadequate state support for immediate spending.    How this thinking appears to have affected recent decisions on the Young Students Bursary in particular is considered further here. However, since student loans have become available in  larger amounts through the Barnett formula, the case for giving up grant for higher, loan-supported spending power has been overtaken.