Universities Call For Higher Student Loan Rate

Fri, 14 May 2010

Graduates could be forced to repay their student loans earlier and at a higher interest rate to help create more investment for Britain’s universities .

The Russell Group, which represents the UK's 20 leading universities, warns that the financial sustainability of its members is 'severely at risk' by the government’s planned cuts in higher education funding, and that action must be taken to plug the hole in their finances .

In their submission to Lord Browne's independent review of the student funding system, the group suggests introducing a real interest rate that reflects market borrowing costs, rather than the subsidised one that is currently offered to students.

It says: "The lack of real rate of interest on student loans is therefore a subsidy which imposes high costs on the government, and which exceeds the requirements of ensuring fair access to higher education ."

"Moreover it is a subsidy which is targeted towards better-off graduates . As it represents a re-distribution of funds from the worse off to the best off, it is therefore a highly regressive policy."

"One way of modifying the current system is therefore that student loans should carry a real rate of interest; one which would be equivalent to the Government’s overall cost of borrowing ."

Another option it says is to lower the earnings threshold at which graduates start repaying their loans from its current level of £15,000 a year.

The Russell Group stopped short of calling for an increase in tuition fees, however it did indicate that alternative solutions may not be fully plausible.
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