The cost of financing England’s student loan system is expected to rise by more than £10 billion a year due to the increased cost of government borrowing, according to a leading economic thinktank.
In what it calls a “costly, opaque and oddly-targeted subsidy”, the Institute for Fiscal Studies highlights how, owing to the new cap in interest rates charged to graduates and a rise in the cost of government bonds, even loans that are repaid in full will lose the taxpayer money.
After years of low-cost borrowing, a 15-year gilt yield has risen from 1.2 per cent to 4 per cent over the past two years, making it higher than the expected Retail Prices Index (RPI) of inflation, predicted by the Office for Budget Responsibility to average 2.4 per cent over the next 15 years.
Changes introduced last autumn mean students will now only be charged interest equivalent to the current rate of RPI when paying back their loans, meaning that the government can expect to pay 1.6 percentage points more in interest on its debt than the interest rate it charges, an IFS report – published on 9 January – says.
