Choices for reducing the rate of interest on student education loans and reintroducing maintenance grants

Choices for reducing the rate of interest on student education loans and reintroducing maintenance grants

In October, the Prime Minister required an inquiry in to the education loan system for greater training (HE). In this briefing note, we give attention to two regarding the more unpopular options that come with the system that is current. We explore federal government choices for decreasing the rates of interest charged on student education loans, through the current degrees of RPI + 3% while learning and RPI + 0–3% (according to earnings) after making college, as well as for reintroducing living-cost grants – which don’t have to be repaid – for students from lower-income families. This briefing note shall be submitted as proof for the inquiry.

Key findings

  • Positive genuine rates of interest on student loans boost the financial obligation quantities of all graduates but just raise the life time repayments of higher-earning graduates. Eliminating them will not influence up-front government investing on HE, however it does somewhat boost the deficit (because of the slightly confusing treatment of great interest accrued on pupil financial obligation when you look at the federal government funds). More dramatically, in addition it increases the long-run expenses of HE as a result of connected reduction in graduate repayments.
  • Reducing the interest levels to RPI + 0% for all would lower the financial obligation amounts of all graduates. Debt on graduation will be around ?3,000 reduced an average of, while typical financial obligation at age 40 will be ?13,000 lower. But, due to the website website link between earnings and desire for the present system, this cut would decrease the debts associated with the highest-earning graduates probably the most: the wealthiest 20% of graduates would hold around ?20,000 less financial obligation at age 40 due to this policy, even though the lowest-earning 20% of graduates could be simply ?5,500 best off when it comes to debt held in the age that is same.
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