University Student Finance

Question

Asked by

To ask His Majesty’s Government what plans they have, if any, to reform university student finance.

My Lords, this Government are taking decisive action to improve the student finance system that we inherited. We are capping interest rates to protect plan 2 and plan 3 borrowers from inflation shocks. We increased the plan 2 repayment threshold twice—its first increases since 2021. We have future-proofed maintenance loans, and we will be reintroducing maintenance grants in 2028. We will continue to look for ways to make the system fairer for students, graduates and taxpayers.

My Lords, I thank my noble friend the Minister for that Answer, but surely the student finance system inherited from the Conservatives is an utter shambles: there is mountainous student debt, averaging £70,000, compounding at extortionate interest rates; the Treasury is left with ginormous liabilities, because half is never repaid and is written off; and nearly half of UK universities have rising deficits, with closures and mergers forecast, thousands of lecturers sacked and diminished teaching standards. For every £3.50 paid by taxpayers on debt cancellation, just £1 is spent on teaching students. This is madness. Will the Government implement a graduate tax, estimated at 2%, much lower than the 9% now compulsorily deducted from graduate workers above the repayment threshold? This would be much fairer for students, good for universities and good for taxpayers.

My Lords, I acknowledge my noble friend’s criticisms of plan 2 loans, which were designed by the Conservative and Liberal Democrat coalition. Having said that, in principle, a combination of income-contingent student loans and grants is a fair way to ensure that those who benefit from higher education contribute, while lower earners are protected. On the point about the financial sustainability of higher education, our increase of the tuition fee cap is now providing more certainty to higher education about its income from tuition fees, which should enable it to take a longer-term view of its workforce planning and to protect the talent that exists within our higher education institutions. A graduate tax would dramatically increase upfront costs for taxpayers and incentivise graduates to move overseas after completing study. I suspect that these are just a couple of the reasons why no country has ever financed higher education in this way.

My Lords, bearing student finance in mind, what criteria are the Government using to define what they call “poor-quality” university courses?

First, the Office for Students is undertaking a new approach to measuring the quality of what is being provided in our universities. Secondly, we have seen through some of the research published last week the ability to determine what the returns are from individual courses. It is for that reason that we will take action to prevent the expansion of those courses that are not providing the returns or experience that students have the right to expect. If necessary, we will legislate to do that.

My Lords, the Minister is entirely right to be sceptical about a graduate tax. I am glad to hear her repeat the commitment to automatic indexation of tuition fees. However, that requires legislation—of which there was no mention in the King’s Speech. What are the Government’s plans for giving effect to that commitment?

The first thing that indexation of tuition fee caps needs is political will from a Government. It was a lack of that political will that meant that they were frozen for seven years under the previous Government. We have already taken action, two years in a row, to increase the tuition fee cap. We will continue to do this up to the point at which we can legislate to index that.

My Lords, I recently attended a meeting in my home city of Sheffield, where students and staff from the University of Sheffield and Sheffield Hallam University came together to highlight the chronic financial pressures that are leading to staff lay-offs and the closure of some of the courses. The key message from that meeting was: “When will this Government bring forward a long-term financial strategy that puts university education on a more secure and sound financial footing?”

We acknowledge the challenges that are facing higher education providers. While the providers are independent of government and responsible for managing their finances, it is this Government who have acted to secure a financial future for our world-leading higher education sector. We have increased tuition fee caps in line with forecast inflation for 2026-27 and 2027-28. We appointed Professor Edward Peck as chair of the Office for Students. He is working to strengthen its commitment to financial sustainability. The tuition fee increase brings into the sector an additional £6 billion over the next few years. Given that greater financial stability for the sector, we expect providers to work with their staff to develop sustainable models that retain talent and expertise and provide stability for the workforce and the institution.

My Lords, I welcome the Minister’s indications in response to questions so far. However, three months on from her first announcement about poor-value courses, we are still waiting for the information that is needed for students to assess which courses they should avoid before they are saddled with lifetime debt. The best advice seems to be to choose carefully, but some applicants are choosing now. Can the Minister give us some idea of when there will be better data available?

I am sure that the noble Baroness will have seen the data last week from the IFS using LEO data. It identifies those courses which are most likely to bring a positive return for students. It is worth remembering that, after the repayment of student debt, the majority of students will receive throughout their lifetime a positive return from going to university. The information published last week was clear about which courses would be less likely to provide that positive return. That does not mean that there may be no reasons for taking those courses, but it is information that students can use. Also, through Discover Uni and working with UCAS, we will ensure that this information is more easily available to students when they are making decisions, as the noble Baroness says.

My Lords, can the Minister tell us what the current state of the student debt is?

The current student loan book stands at £296 billion.

As the Minister just said, the student debt in England is £296 billion and is expected to hit £500 billion by the late 2040s. Interest is added until debt is repaid or written off. What assessment have the Government made of the impact of student loan repayments on the ability of the affected people to buy a home or to start a business or a family?