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Alternatives for reducing the rate of interest on student education loans and reintroducing maintenance grants

Alternatives for reducing the rate of interest on student education loans and reintroducing maintenance grants

In the Prime Minister called for an inquiry into the student loan system for higher education (HE) october. In this briefing note, we concentrate on two associated with more unpopular attributes of the present system. We explore federal federal government alternatives for reducing the interest levels charged on figuratively speaking, through the current quantities of RPI + 3% while learning and RPI + 0–3% (according to income) after making college, as well as reintroducing living-cost grants – which don’t have to be repaid – for students from lower-income families. This briefing note will be submitted as proof when it comes to inquiry.

Key findings

  • Positive genuine interest levels on pupil loans boost the financial obligation amounts of all graduates but just raise the life time repayments of higher-earning graduates. Getting rid of them does not influence up-front government spending it does slightly increase the deficit (due to the slightly confusing treatment of interest accrued on student debt in the government finances) on HE, but. More somewhat, in addition advances the long-run expenses of HE because of the connected reduction in graduate repayments.
  • Reducing the interest levels to RPI + 0% for everybody would lessen the debt quantities of all graduates. Financial obligation on graduation could be around ?3,000 reduced on average, while typical financial obligation at age 40 could be ?13,000 reduced. But, due to the link between earnings and fascination with the existing system, this cut would decrease the debts of this highest-earning graduates probably the most: the wealthiest 20% of graduates would hold around ?20,000 less financial obligation at age 40 due to this policy, whilst the lowest-earning 20% of graduates could be simply ?5,500 best off when it comes to financial obligation held during the age that is same. Continue Reading →
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