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Last Updated: Monday, 28 July, 2003, 14:05 GMT 15:05 UK
Big rise in cost of student debt
students in lecture
Limited grants will return from next year
The interest rate payable on official student loans is about to more than double.

From September, the rate will rise from 1.3% to 3.1% - an increase of 138%.

The change affects more than a million people.

But the education department in England said it would be misleading to say that they would be paying "more".

It said the rate was linked annually to the retail prices index, to make sure everyone paid back the same amount, in real terms, that they had borrowed.

The department has confirmed that if its plans for a higher repayment threshold go through, everyone will pay less and many people will get a payments "holiday" in a few years' time.

Tuition fees

At present loan repayments start once graduates are earning at least 10,000 a year.

Under the government's controversial proposed reforms of the system in England, that threshold is set to rise to 15,000 from 2005.

That will also be the threshold for paying the "top-up" tuition fees. Unlike now, from 2006 fees will no longer be due while people are actually studying.

If the change goes through someone earning more than 10,000 who has begun making repayments, but is earning less than 15,000, will stop repaying until their income passes the new threshold, the Department for Education and Skills has said.

This is already the case if someone's income is cut during the year - if they lose their job, for instance.

And all those who are paying will be paying less.

The catch is that the interest rate continues to apply whether repayments are being made or not.


The latest figures, for the 2001/02 academic year, show that about 81% of those eligible for a student loan in the United Kingdom took one out.

It appears some are forced to incur the debt even if they do not feel they can manage it.

The University of Oxford students' union, in a survey of hardship, reports that a student who asked their college for financial support was told they could not receive any hardship money until they had applied for an extra loan from the Student Loans Company.

"This is obviously off-putting for those who don't want to plunge themselves still further into debt," the union said.

Its small-scale survey found that almost one in five Oxford University students said they were having to work during term time to make ends meet.

The union's vice-president for access and academic affairs, Louise McMullan, said: "Most colleges strongly discourage work during term time - there is no doubt that it affects students' academic performance.

"The government support is insufficient. Those who are better off will also be more advantaged academically."

It is particularly worried about the likely impact of proposed rent increases.

The government has said it will continue to review the appropriate level and means of providing student support to those from disadvantaged backgrounds to see if it can be made fairer.

"For example, we have recently announced a new package of support for part time students and that the upper income threshold for receiving the maximum grant of 1,000 will now be 15,200," said a spokesperson for the education department.

This grant is being introduced in 2004.

The department said it would consider whether it could target these resources better, "for example in remitting graduate fee contributions above the 1,100 level, perhaps by building schemes that work in partnership with universities' own bursary schemes."

'Lifelong burden'

But it is what lies ahead when tuition fees rise that worries the Liberal Democrats' higher education spokesman, David Rendel.

"Many graduates, including almost all women who take career breaks, will find it difficult to pay off their debt throughout their entire working lives," he said.

A student who left university with the predicted debt of more than 20,000 would be paying 500 in interest if inflation reached the government's target of 2.5%.

The education secretary's own figures showed that a graduate earning 20,000 would repay only 450 per year, so their debt would simply increase each year.

A graduate would have to be earning 32,000 before they could be paying off even one twentieth of their debt per year - much higher than the earnings of many graduates in teaching, nursing or other public sector or charity jobs, Mr Rendel's office said.

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10 Jul 03  |  Education
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23 Jun 03  |  Politics
Tuition fees 'justified by earnings'
21 May 03  |  Education

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