Higher university fees 'will add £100bn to public debt'

Students will pay a maximum of £9,000 a year from this September

Plans to allow universities to charge up to £9,000 tuition fees could push public sector debt up by up to £100bn over the next 20 years, a report says.

Students at England's universities will be able to take out government-backed loans covering the higher fees, as teaching grants are slashed from 2012.

The government insists its plans are sustainable, and predicts student loan debt will peak at £50bn in 2030.

But a study warns it could be double that.

The report by Andrew McGettigan, for the Intergenerational Foundation, analyses the impact of lending students fees to pay their loans, and allowing them to pay back once they start earning £21,000 a year.

'National debt'

It says: "Replacing direct grants to universities with higher fees backed by higher loans reduces the relevant government department's contribution to the deficit.

"But the cost of government borrowing adds significantly to the national debt in the short and medium term."

The Office for Budget Responsibility estimates the loans will cost £12bn a year by 2015-16.

This is an increase of £5 to 6bn a year and "eclipses" the £3bn savings achieved through the cuts announced to the teaching grant, the report says.

This means the policy of higher student loans costs as much as twice as much a year as the annual savings from cutting teaching grants.

But because of a government accountancy convention these outgoings are not officially counted as part of the deficit.

Nonetheless, the money will only be repaid when enough graduates are repaying their loans. This is predicted to be in about 2032 by the OBR or eight years later in 2040 by the Department for Business, Innovation and Skills.

'No protection'

And there are already concerns about the assumptions made about how many graduates will earn enough to pay back their student debts of between £30,000 and £40,000.

The government is predicting that it will get back about 70% of the money it lends out.

But the report says: "Given the amounts, the complexities of the scheme and the long lifetimes of the loans, predicting patterns and levels of repayment is extremely difficult."

This is something acknowledged by the government as it relies on a great number of assumptions about future events, economic growth and student behaviour.

And the report points out that if repayments are not made as expected, future governments could change the terms and conditions on the loans to balance the books.

It adds that those who will have already taken out loans "have no protection" against any changes to the terms of their loans.

And it adds that future student groups will have loans offered on much less generous terms.

It also claims the government is "secretly investigating" the possibility of selling off student loan liabilities and that under present legislation this can be done without carrying out a consultation.

The author also points out that as tuition fees are included in the basket of goods used to determine the Consumer Price Index raising them to a maximum of £9,000 will have an inflationary effect.

This alone could add £2.2bn to the social security budget by 2016, because payments are linked to inflation, at a time when the Chancellor has asked for £10bn savings from this area.

A Department for Business, Innovation and Skills spokesman said: "Our reforms put students at the heart of the system and university funding on to a sustainable footing.

"While the total cash expenditure on higher education will increase due to the extra lending to students, we also expect to receive higher repayments from them as graduates.

"The net impact is that the reforms help to reduce the deficit. Our modelling of student loan repayments is scrutinised by the independent Office for Budgetary Responsibility."

But general secretary of the UCU lecturers' union Sally Hunt said the report confirmed that the government's punitive budget cuts have absolutely nothing to do with reducing the national debt and everything to do with shifting the funding of higher education from the state to the individual.

"Instead of being guided by ideology and adding billions to the national debt ministers should follow the example of other countries and invest in higher education."