December 17, 2018 / 10:19 AM / 3 months ago

UK student loan write-offs to increase budget deficit - ONS

LONDON (Reuters) - Britain will need to recognise upfront from next year that many students will never fully repay government loans, a move that will increase the official measure of public borrowing by billions of pounds, statisticians said on Monday.

FILE PHOTO - A man wears a 'mortar board' hat as he relaxes on a deckchair following a graduation ceremony for students at University of Brighton in Brighton, southern Britain, August 3, 2018. REUTERS/Toby Melville

British student loan repayments are linked to future earnings, and many students are not expected to earn enough over their working lives to fully repay the loans and interest before they are automatically written off, 30 years after graduation.

About 40-45 percent of current lending and the interest due on it is unlikely to be repaid, the government told a parliament committee earlier this year, which in turn asked Britain’s Office for National Statistics (ONS) to factor this into measures of public finances.

Currently, student loan write-offs are not required to be reflected in the public finances until they take place several decades in the future.

But next year - probably from September - the ONS plans to treat part of the loan as spending for statistical purposes.

“We will split the government’s student loan payments into a portion that will be repaid and is therefore genuine government lending and a portion that is not expected to be repaid, which will be treated as government spending,” ONS deputy national statistician Jonathan Athow said.

Based on estimates from the government’s Office for Budget Responsibility, this will increase annual public sector net borrowing by 0.6 percent of gross domestic product, equivalent to 12 billion pounds for the current year, the ONS said.

SOARING LOANS

There will be no effect on public sector net debt, but the ONS said changes would stop sales of student loans to private-sector investors from appearing to flatter the public finances.

The size of student loans has soared since 2012 when the government increased the maximum amount that universities could charge English undergraduates to 9,000 pounds ($11,359) a year, and also raised the interest rate to 3 percent above inflation. There are different rules for Scotland, Wales and Northern Ireland.

The increased fees helped fill a shortfall in government grants to universities that formed part of austerity measures,

In total the government now lends students around 13 billion pounds a year, more than double the amount lent in 2010/11, and the total amount outstanding is more than 100 billion pounds.

Britain’s finance ministry said the change did not affect what it called the “value for money case” for loan sales, which are due to raise 12 billion pounds by 2022.

Parliament’s public accounts committee said last month that the sale last year of student loans with a face value of 3.5 billion pounds for just 1.7 billion pounds was “short-sighted” did not offer convincing long-term value for money.

Reporting by David Milliken; editing by Sarah Young and Andrew Heavens

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