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‘Fiscal bomb’: Around 45% of UK graduates cannot pay back student loans

Published time: March 22, 2014 13:01
Edited time: June 27, 2014 08:35
AFP Photo / Leon Neal

AFP Photo / Leon Neal

In a dramatic reassessment of UK student finance, the government estimates around 45 percent of graduates will be unable to pay back their loans. The shortfall could cancel out the profits made by the disputed tripling of tuition fees in 2012.

British Universities Minister David Willetts has said that the amount of graduates who will fail to pay back their student loans has greatly exceeded previous estimates. Before tuition fees were increased threefold in 2012, the government predicted that only 28 percent of loans would ever be paid back. However, in light of projections for the coming years, the government has reassessed this figure and almost doubled it to 45 percent.

This increase could potentially nullify the 10 billion pounds ($16 billion) in profits made by increasing tuition fees to 9,000 pounds ($15,000) a year in 2012. If the amount of students unable to pay back their loans grows to 48.6 percent, economists predict the government will start losing more money.

When the tuition fee hikes came into effect, the Conservative government hailed them as progressive and a way of allowing universities to make the money back they had lost in state funding. Rival party Labour condemned the move as a “tragedy” for a generation of young people, while the National Union of Students called the threefold increase an “outrage.” The reform triggered widespread protest across the country.

Labour’s shadow Universities Minister Liam Byrne told the BBC that the latest figures are evidence that the new system has made no difference to students as “so few students can afford to ever pay their debts back.”

“It is clear we have built the student finance system on top of a money pit. I am afraid it can't go on and we now need a debate about how we are going to pay for higher education and the nation's universities in the decade ahead,” said Bryne.

Furthermore, Commons committee chairman, Adrian Bailey, described the current situation as a “fiscal timebomb” to The Guardian and said the government would have to address the issue or face the consequences.

British graduates begin to pay back their student loans when they start earning above a certain wage bracket. Under the old system, if graduates earned above 15,000 pounds ($24,000) a year they were required to start repaying their loan in monthly installments. At present graduates begin to pay off their loan once they have an annual salary that exceeds 21,000 pounds ($34,000) a year.

However, the onset of the financial crisis and an increase in the number of graduates in the UK has pushed up youth unemployment over the past year. According to government figures, unemployment currently stands at 7.2 percent, while youth unemployment is much larger - 19.8 percent. Between November 2013 and January 2014, 912,000 people aged between 16 and 25 were out of work.

As a result of the recession, living standards have fallen across the board in the UK since 2010, according to data by the Institute of Fiscal Studies.