Cross-party MPs and national auditor both blast student loans system

Janet Downs's picture

It’s ‘absurd’ to use a ‘flawed inflation measure’ when calculating interest on student loans, the chair of the Treasury Committee and former education secretary Nicky Morgan said.  

Morgan was commenting on the response by the Department for Education (DfE) to the Committee’s earlier Student Loans report.  This had contained several recommendations to improve the student loans system.  These included:

  • 'The Government must reconsider high interest rates on student loans'
  • 'The Government must abandon using RPI (Retail Price Index) in favour of CPI (Consumer Price Index) to calculate interest rates'.

The DfE acknowledged that RPI was flawed but argued that continuing to use RPI had ensured ‘consistency over time’. Morgan was not convinced:

Continuing to use a measure that it [the DfE] admits to be flawed, on the grounds of consistency, is absurd; it guarantees that student loan interest rates will be consistently flawed.

It appears, then, that the DfE values consistency over putting right a defective system.  It’s as if a DfE spokesperson popped up with the excuse, ‘We know it’s unsound, but at least we’re unswerving.’

Morgan’s withering response comes at the same time as a National Audit Office (NAO) report  into oversight of the Student Loans Company’s governance.    The NAO said there had been many changes within the Company during 2016 when its oversight had transferred from the Department for Business, Innovation and Skills to the DfE.  However, the DfE had not considered ‘whether its oversight arrangements were sufficient’ and hadn’t reassessed ‘the appropriateness or effectiveness’ in response to the changes.

The NAO lambasted government departments which had sponsored the Company.  The ‘framework document’ setting out ‘the terms of the relationship’ between departments and the Company hadn’t been updated since 2009.   

This had led to officials from both the Company and the DfE not being clear about the role of DfE representatives on the Company’s board and how far they ‘should be observing, advising or intervening in the Company’s business.’ 

 The NAO said it had ‘identified similar concerns’ in an overall review of how government departments oversaw arm’s length bodies in June 2016 – nearly two years ago.

The DfE said it will review the ‘governance and structure of the Company’ and the initial phase of this would be completed by June 2018.   The DfE hadn’t yet decided the ‘detailed scope of phase two’ which is intended to examine the ‘longer-term operating model’ of the Student Loans Company.

At the same time as reviewing the longer-term operating model, the DfE should consider the unfairness of excessive interest rates on student loans.  Sticking with a faulty policy on grounds of consistency is, to use Morgan’s word, absurd.

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