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Unpaid student loan debt could be underestimated by 8%

The government is underestimating the value of student loans that will never be paid back by about 8%, the Public Accounts Committee (PAC) has warned.

There is currently £46bn worth of outstanding debt, which is set to rise to £200bn by 2042. The government currently assumes between 35% and 40% of this debt will never be paid back, but MPs warned it could be much more.

Margaret Hodge MP, chair of the PAC, said: “The government assumes that 35% to 40% of the total will never be repaid. That is some £16bn to £18bn on the current debt of £46bn and £70bn to £80bn on the estimated value of student loans by 2042.

“But we don’t have confidence in those figures. We think that the value of student loans never to be repaid could be even higher – because the government consistently overestimates what’s due to be repayed by some 8%. The Department must improve its forecasting so that action can be taken to reduce the ever-growing write-off figures.”

The committee called for BIS to publish clear and easily understood annual forecasts of what it expects to collect and explain any subsequent variances between the forecasts and the money actually collected.

The department is also not tough enough at collecting repayments, MPs said.

Hodge said: “The Student Loans Company is in the dark over what a large number of borrowers who are not repaying at the moment but are still classified as being in the ‘repayment’ category are currently doing. It knows very little about British graduates who live abroad or about graduates from the EU who have since left the country. Will they ever pay back their loans? The Student Loans Company simply doesn’t know.”

A spokesperson for BIS said: “We need to ensure that all borrowers who are earning over the relevant repayment threshold are repaying their loans including those who have moved overseas after leaving their course.

“We are continually improving the collection process for borrowers and we will carefully consider the PAC's recommendations as part of this programme.

“A new and more accurate forecasting system is also being developed.”

Tell us what you think – have your say below, or email us directly at [email protected]


A Jones   17/02/2014 at 11:55

A cynic may say that by not making an effort to collect loans Ministers intend to increase the profits of the companies that buy the "bad" loans.

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