Crawford, Claire; Crawford, Rowena; Jin, Wenchao; (2014) Estimating the public cost of student loans. (IFS Report R94 ). Institute for Fiscal Studies (IFS): London, UK.

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Abstract

The UK is currently experiencing a period of considerable fiscal austerity. This has had profound implications for virtually all areas of public spending, including spending on higher education (HE). One area of government spending on HE that has been relatively less well understood to date is spending on student loans. Student loans result in a longrun cost to the government for two reasons. First, not all loans will be repaid, since the debt is written off under certain circumstances. Second, the loans are (on average) made available at subsidised interest rates – in other words, the interest payable by the borrower is generally lower than the interest the government has to pay on its debt. This means that providing student loans would be costly to the government even if they were all repaid in full. Estimating the long-run public cost of providing student loans is important. The government needs to have an unbiased estimate of the cost of student loans, and a quantification of the uncertainty around that, if it is to understand the public finance implications of the current HE funding system, its likely financial sustainability, and how the burden of HE funding is shared between the taxpayer and graduates. Were the long-run cost of issuing student loans today to be underestimated, then a future government would have to accept higher-thanexpected levels of public sector debt, or offset this by increasing taxes or cutting spending elsewhere.

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