Student loans: an issue for Scotland too

Given that in Scotland we are planning to rely more and more on student loans to finance our higher education system, we don’t talk about them much and it’s not clear that we understand them very well.

There is by contrast a lively critical debate underway elsewhere in the UK about the implications of the growing use of student loans. Andrew McGettigan has written some powerful stuff about the long-term issues stacking up down south as a result of the scale of debt being built into the system. Nicholas Barr at the LSE has written about how the detailed design of the loan scheme can make it more or less regressive.  HEPI has also been active on this subject. Sometimes the commentators disagree on some pretty fundamental points: see for examples this response by the  IPPR to criticisms by McGettigan of a report containing a very detailed analysis of the role of student loans.

I’ve written largely about how policy on Scotland is generating a regressive distribution of graduate debt.  This post and a few more to follow will draw on the work above to look at the student loan system more generally, because here in Scotland we too should be discussing the big issues round student loans.

Although the most recent budget for Scotland didn’t suggest that we will be moving to English levels of overall borrowing in the near future, it did confirm that by 2015-16, over 80% of our support for students’ living costs will be provided through student loans. In that year net loans advanced will have risen to £468m (from £241m in 2012-13), driven by a substantial (-30%) withdrawal from the use of student grants and a reliance entirely on loan to provide improved living cost support, as explained in more detail here. Even once all the funding provided for HE in universities and colleges by the Scottish Funding Council is included, student loans will still account for around one-quarter of the total funding provided by the Scottish Government to higher education.

Nor is it clear how far the net loans figure is acting in the budget as a proxy for gross loans – ie the actual total value of new loans being issued, before taking account of repayments from earlier cohorts from students. If gross loans are in fact expected to be higher, then in terms of gross outlay, all the percentages above will be higher too.

In this post I noted the especially sharp rise planned for the Resource Accounting and Budgeting (RAB) charge for student loans in 2015-16 and wondered if more about this would emerge in the process of  budget scrutiny. Surprisingly perhaps, nothing did, leaving it unclear what is driving this.  However, looking at the scale of borrowing planned in England, it is plausible this is simply the Barnett consequential.  Assuming so, that gives the Scottish Government the power to issue far more loan under the terms of the current scheme than on any measure it will conceivably need to do.  At a RAB rate of 31% (the latest we know of) £302.1m of RAB charge could generate  nearly £1bn in loans, or double the net loans budgeted for next year.

Does this matter?  It does, because it gives the Scottish Government headroom to look at the detail of the loan scheme and deal with some of the ways in which the scheme available to Scottish (and also Northern Irish) students bears down harder on low earners than one now  used for England and Wales.  In particular,  in Scotland  debts of around £25,000 to £30,000  will only be found among  degree students  from poorer backgrounds, while many better-off  students will have much lower debt than that.  So we will be let off  one of the largest problems in England.  That is, that many of their graduates will have student loan debts of over £30,000 plus (plus), which will simply be too large to collect under the current  terms of the income contingent loan scheme, stacking up problems for the future.

Under the current arrangements, there is room in Scotland to use student loan more intelligently and fairly, while continuing to benefit from the way in which loans stretch out the resources available to government to fund the higher education system, but avoiding the worst effects of the decision in England to rely so heavily on loans.

A few more posts on this to follow.