Until the Department for Business, Innovation and Skills (BIS) has a robust strategy for maximizing the collection performance of student loans and improves its information on borrowers, it will not be well-placed to secure value for money, according to today’s report from the National Audit Office.
BIS forecasts that the total value of outstanding student loans will increase from £46 billion in 2013 to approximately £200 billion by 2042, in 2013 prices. The number of borrowers due to repay is projected to increase from 3 million in 2012-13 to 6.5 million by 2042. The loan book is therefore becoming a substantial public asset.
BIS and its collection partners HM Revenue & Customs and the Student Loans Company (SLC) work together in a joined-up way. In 2012-13, they collected £1.4 billion in student loan repayments, at a cost of £27m. While using the existing tax system brings clear benefits for efficient collection from borrowers who work and pay tax in the UK, BIS nevertheless needs to make better use of data to support its collection strategy and improve its understanding of where it could invest to maximise the collection value of the loan book.
In designing how student loans would work, BIS anticipated that a proportion of the loans would not be repaid. However, BIS has not set an annual target for the amount to be collected because repayments are affected by graduate earnings and economic factors outside its direct control. It does not separately publish its forecasts for the amounts it expects to be collected and has had difficulty developing an accurate forecasting model. Annual repayment forecasts are consistently higher than amounts collected and BIS cannot explain why forecast repayments are currently around 8 per cent higher in value than actual repayments.
Furthermore, it has not done enough to establish whether borrowers with no current employment record are earning enough to repay their loans. While many of these borrowers may not be in employment, BIS and the SLC have carried out little analysis to establish how many may be working overseas or the level of repayments that may be missed. They need to improve their information on borrowers to make more informed judgements about where to invest to maximize recovery.