The Department for Business, Innovation and Skills (BIS) could be forced to cut spending in other areas if it cannot increase the proportion of student loans that are paid back, according to new research.
The Higher Education Policy Institute says an accounting change which means BIS and the Treasury will share the burden of un-recouped loans risks “driving policy” in the department.
The accounting change means that the BIS budget will be affected if projections downgrade the amount the government can expect to recoup from loans.
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Nick Hillman, the director of HEPI and former adviser to ex-Universities Minister David Willetts, said BIS could be incentivised to change the terms of student loans to protect the proportion of loans repaid.
“Without stricter repayment terms, there could be cuts to other key departmental programmes, such as apprenticeships or science,” he said.
The report’s author, Andrew McGettigan, said the changes were “driving policy” at BIS.
“It is no longer reasonable to argue that losses on loans are irrelevant today, since they translate into a cash sum that must be covered from elsewhere,” he argued.
“This new risk-sharing agreement may incentivise BIS to change student loan repayment terms. That could undermine public goodwill towards higher education and bring more fundamental questions about sustainability to the fore...
“If we are making policy fit the accounting without critical scrutiny, as seems to be happening, then something has probably gone wrong.”
He identified freezing the salary threshold at which graduates begin to repay their loans at £21,000 and keeping the cap on fees at £9,000 as the two easiest options available to BIS to boost the percentage of loans being repaid.
In a blogpost accompanying the new pamphlet, McGettigan also criticised George Osborne’s plan to sell off the student loan book.
“The government will likely lose money on any sale and has formalised that by basing its central ‘value for money’ test in a way that would accept a price lower than its value for loans in its accounts.”