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UK government is “in the dark” over student loan repayments, MPs warn

MPs have strongly criticised the UK government for consistently underestimating the cost of student loans that will never be repaid and for failing to chase up defaulters.

A damning report on student loan repayments from the House of Commons Public Accounts Committee says the government has been over-optimistic in assuming annual loan repayments of about 8 per cent, and does not sufficiently understand the likely cost to the taxpayer of non-repayment of an estimated 40 per cent of loans.

The current approach to collecting debt, especially from European Union students and UK students who have moved abroad, “lacks rigour” and information on borrowers is not up to date, the report warns.

Margaret Hodge, who chairs the committee, said in evidence taken by the committee that 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."

Over three quarters of loan repayments from borrowers living overseas have been overdue for more than a year, and the number of borrowers due to repay, currently at around 3 million, is expect to climb to 6.5 million by 2042. The total level of debt over this period is expected to rise from £42 billion to £200 billion.

The report points out that the government is relying on sale of the student loan book to help fund its plans to lift student number controls from next year, but this is likely to be hampered by the lack of reliable information on the value of loans, taking defaulters into account.

The committee calls on the Government to develop a strategy for collecting overdue debt more quickly.

Get the full picture from HEi-know: Briefing Report 128