Should government scrap interest on student loans?

Health & Education

In a letter written to government, seven universities have called for the scrapping of interest on student loans for the equivalent of a 15-month period, starting from last March. This, the vice-chancellors claim, will ease some of the financial burden Covid-19 has placed on many students. 

But is this really the best way to help students? The government doesn’t seem to think so. Universities minister, Michelle Donelan, was quick to point out that “at least half of students don’t actually pay back their student loan”. The proposed plan, therefore, wouldn’t put any real money into the pockets of students, but rather save them money in the longer term. 

Instead, the government has pledged another £50m to student hardship funds across the country, taking the total to £70m since December. This, it claims, will proactively help those students who are most in need. 

In the letter, the vice-chancellors noted how the pandemic had placed enormous pressure on students, with some universities seeing over 100% increases in their hardship funds demand. This seemingly proves the government’s subsequent increases to hardship funds as the right course of action. 

Students are eligible for hardship funds if they have lost employment, are from a low-income family, or have children to take care of while they study (to see if you qualify, click here). Many of these factors will have been exacerbated by the pandemic, so it seems only right to boost the funding available for relief. 

To my eye, suggesting scrapping interest on student loans is a good way for universities to look like they care about students without actually having to hand out any money themselves. Reducing student loan interest over the suggested period would cost the government c.£33m, independent consultancy London Economics calculates, and would cost the universities nothing. 

Students themselves have called for refunds on their university accommodation which they were encouraged to buy on the pretence they would need to be there for in-university lessons this year. Yet, students currently have no right to request such a refund, so are stuck paying thousands of pounds to live in halls with only remote learning options available – something which could be done rent-free from home. 

It seems a little negligent for the universities to have missed the possibility of this happening. Surely another lockdown situation should have been foreseen and planned for – perhaps with part-time accommodation available, or shorter tenancy periods.

Instead, the universities call for financial reimbursements to be made at the cost of the Student Loans Company, and still seem to come out on the moral high ground. 

The government has already pledged over double the estimated cost of the loan interest reduction to those students who are most in need. This is on top of its funding last year, mainly in the form of business loans, academic research grants, and tutorial fee payments. Perhaps there is something the universities can be doing themselves to better allocate budget in the interest of students?  

The cost of writing off their interest, for that one cohort, for this academic year is estimated at roughly £33m, or a 0.3% increase in the cost to the government of funding this cohort.

By Rebecca Garland on 22/02/2021