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

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

In the Prime Minister called for an inquiry into the student loan system for higher education (HE) october. In this briefing note, we concentrate on two associated with the more unpopular attributes of the present system. We explore federal government alternatives for reducing the interest levels charged on student education loans, through the present amounts of RPI + 3% while learning and RPI + 0–3% (according to earnings) after making college, as well as for reintroducing living-cost grants – which do not need to be repaid – for students from lower-income families. This briefing note shall be submitted as proof for the inquiry.

Key findings

  • Good genuine rates of interest on pupil loans raise the financial obligation amounts of all graduates but just boost the life time repayments of higher-earning graduates. Getting rid of them will not influence up-front federal government spending on HE, however it does somewhat raise the deficit (because of the slightly confusing treatment of great interest accrued on pupil debt into the federal government funds). More considerably, additionally escalates the long-run expenses of HE as a result of the linked reduction in graduate repayments.
  • Reducing the rates of interest to RPI + 0% for everybody would lessen the financial obligation degrees of all graduates. Financial obligation on graduation could be around ?3,000 lower an average of, while average debt at age 40 is ?13,000 reduced. Nonetheless, due to the website link between earnings and curiosity about the existing system, this cut would lower the debts for the highest-earning graduates probably the most: the richest 20% of graduates would hold around ?20,000 less financial obligation at age 40 due to this policy, whilst the lowest-earning 20% of graduates could be just ?5,500 best off when it comes to debt held during the exact same age. Continue reading “Alternatives for reducing the rate of interest on student education loans and reintroducing maintenance grants”