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Last Updated: Friday, 16 June 2006, 11:36 GMT 12:36 UK
Graduates 'in arrears' with loans
graduation ceremony
Students repay their loans after they graduate and start earning
Many graduates across the UK are failing to keep up with their student loan repayments, statistics show.

Figures from the Student Loans Company (SLC) show 186.3m worth of loan repayments were in arrears by the end of the financial year in 2005-06.

Opposition MPs called on the government to address the issue of student debt.

In total students and graduates owed nearly 18.7bn in loans accrued over recent years, including those not yet due for repayment, the figures show.

Any graduate still paying off their loan 25 years after graduation will have their outstanding debt paid by the government
Bill Rammell, Higher Education Minister

The SLC published statistics for two types of loan - the old system of "mortgage style loans" and the new "income contingent" loans.

The mortgage-style loans involve graduates repaying the debt themselves every month, usually through a direct debit.

For the newer, income contingent loans, the repayments are usually automatically deducted from graduates' pay by their employers.

Most of the loans in arrears were for the old mortgage-style arrangement, which was replaced with the new system in 1998.

Debt written off after 25 years

Higher Education Minister Bill Rammell said student loans were a "world away" from commercial loans, with repayments linked to monthly income rather than debt.

"Student loans only charge interest at the rate of inflation, so graduates will not be penalised for taking longer to pay off their loan, or for taking time out to have a family or a gap year," he said.

"And, any graduate still paying off their loan 25 years after graduation will have their outstanding debt paid by the government.

"With the reintroduction of maintenance grants and generous bursaries, students will have a much more generous support system than that of the previous funding regime."

Debt cancellations

Shadow Higher Education Minister Boris Johnson said the figures also showed a worrying rise in debt cancellations.

This can happen for loans taken out before September 2006 if a graduate reaches the age of 65, dies or becomes permanently disabled and is unfit for work.

"These have gone up by almost 60% on last year to 5.6m," said Mr Johnson.

"With the variable fees coming in this year, there is a real risk of moral hazard if students and families believe these debts will simply be purged by the state.

"Too much debt cancellation will increasingly be seen as unfair on those families that do struggle to pay.

"We must make sure that the debt burden is bearable."

Liberal Democrat education spokeswoman Sarah Teather said the government was not taking seriously the long-term impact of its tuition fees policy.

"This generation of young people face an unprecedented burden of debt which is going to affect their ability to buy homes, start families and save for old age," she said.

"Today's twenty-somethings face serious financial problems because of student debt that their parents never encountered.

"This should be a timely reminder to politicians who glibly talk about lifting the cap on fees that their policies have serious long-term implications for a whole generation's financial security."




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