Nicky Morgan to chair committee examining university costs in England and the possible introduction of a graduate tax
Nicky Morgan, the former education secretary, is to lead an inquiry into the rising costs of the controversial student loans system in England and its possible replacement by a graduate tax.
The House of Commons’ Treasury select committee, which Morgan chairs, will next week launch an investigation into the system of student loans, a subject transformed into a major political issue by the steeply rising levels of debt carried by graduates after leaving university.
Morgan’s inquiry comes after Theresa May announced changes to funding and repayments for undergraduates in England, by freezing tuition fees at their full-time level of £9,250 a year and raising the income level that triggers graduate repayments from £21,000 a year to £25,000.
The Institute for Fiscal Studies (IFS) has estimated that the changes will shift the cost of higher education by £2.3bn a year from graduates to taxpayers, with 83% of recent graduates unlikely to repay their income-contingent loans in full.
“Student loan debt is projected to be around £160bn within six years, and the government has announced that it will review the whole student finance system. The committee will scrutinise the current system and any future developments closely,” said Morgan.
The Treasury committee is to scrutinise the recent changes to student loans, including the repayment thresholds, interest rates, level of tuition fees and the impact on student finances.
But the committee will also look at more controversial areas, including the viability of a graduate tax to replace the loans system, as well as the government’s plans to manage and eventually sell its stock of student loans.
In her speech to the Conservative party in Manchester conference this month, May pledged to take action on student debt and to “undertake a major review of university funding and student financing”. But since then there have been no details of a review taking place.
The inquiry was backed by the Russell Group of leading research universities. Tim Bradshaw, the group’s acting director, said: “I have previously called for the interest rate attached to student loans to be looked at again and am pleased that this will be considered by the committee.”
The system introduced since 2012 means undergraduates take out loans of £9,250 per year for tuition fees, and maintenance loans of up to £8,400 a year for students living away from home outside of London (and £11,000 in London).
Graduates have to pay interest on the debt while studying and after graduation, of up to 6.1% based on income. But they only have to make repayments worth 9% of their income above £25,000, while those who earn less than £25,000 pay nothing.
Any debt or interest remaining unpaid 30 years after graduation is written off by the government, leading the system’s supporters to argue that the funding does not strictly qualify as debt or loans.
The Treasury committee’s first hearing will be held on Wednesday. The inquiry will run alongside similar hearings being run by the House of Lords’ economic affairs committee, which will hear evidence from Martin Lewis, the personal finance guru, on Tuesday.