Freeze interest on student loans during pandemic, say seven vice-chancellors

Most students would not financially benefit from the 15-month interest rate cut, according to London Economics

Seven vice-chancellors have urged the government in England to pause interest on student loans for 15 months.

The announcement suggests university chiefs in England are not in agreement over the best way to respond to the clamour for tuition fee refunds.

The 15-month freeze on interest rates covers the period from the first national lockdown in 2020 until summer 2021 – the vice-chancellors do not expect restrictions to ease significantly to allow in-person teaching to resume for most before the next academic year.

The university chiefs published their letter to the prime minister this morning. The signatories said the challenge of teaching during a pandemic “has stretched financial resources and, even with reprioritisation of spending, will lead to financial deficits”. Some of the universities involved have seen demand for hardship funds increase by over 100%.

“We believe the government must now play its part in championing fairness between the generations,” vice-chancellors said. The waiver “would be seen as a significant gesture and help graduates get off to a better start in the early stages of their careers,” the chiefs added.

Under the English student tuition fee regime, students accrue 5.6% interest on their student loans while studying, based on the retail price index, plus 3%. The 8.6% interest applies until 5 April after they graduate, whereupon the rate adjusts depending on earnings.

The proposal would not, however, amount to a refund or impact repayment levels for most students. Independent consultancy London Economics (LE) calculated it would cost the exchequer £33 million to write off fee interest for first-year undergraduates. LE estimates the interest rate freeze would amount to a small deduction “of a few hundred pounds”, which would be noticeable only to the highest-paid graduates likely to repay their fees in full.

The government expects 25% of current full-time undergraduates who take out loans will repay them in full. That means, potentially, three-quarters of modern-day undergraduates may never repay enough of their loans to benefit from this proposed interest rate freeze.

The seven signatories run universities based in the south-east of England, London or East Anglia. They include Prof Anthony Forster, from the University of Essex; Prof Frances Corner, from Goldsmiths, University of London; Prof Karen Cox, from the University of Kent; Prof Paul Layzell, from Royal Holloway, University of London; Prof David Richardson, from the University of East Anglia; Prof Adam Tickell, from the University of Sussex; and Prof Robert Van de Noort, from the University of Reading.

The University of Reading rejected a campaign last week, led by its students’ union, to refund part of students’ tuition fees for this year.

Vice-chancellor Prof Van der Noort said the university had “worked hard to adapt all aspects of our provision to deliver on learning outcomes and provide the best learning experience possible”.

On 13 January, Prof David Green, vice-chancellor for the University of Worcester, said students with loans with Student Finance England should receive a fee credit of £4,675 for the 2020-21 academic year.

The letter to the government came on the same day the universities minister Michelle Donelan announced a £50m-package to support university hardship funds.

The letter to the government in full:

Dear prime minister, chancellor and minister,

Students are studying in the context of a deadly global pandemic. Our universities have sought every opportunity to support our students – delivering high quality, online learning, supporting student welfare and addressing digital deficits. This has stretched financial resources and, even with reprioritisation of spending, will lead to financial deficits. We believe the government must now play its part in championing fairness between the generations.

The opportunity and wealth gap between the young and old is already unacceptably large – and existing challenges are being amplified by the impact of the pandemic on students and their life chances. We ask the government to increase its support for this generation of students. With 15 months from initial lockdown through to the end of this academic year, the reduction of an equivalent 15-month interest waiver on student loans, would be seen as a significant gesture and help graduates get off to a better start in the early stages of their careers.

The pandemic has placed unprecedented pressures on our students. In some of our universities, demands for hardship funds have increased by over 100%. As a result of the pandemic, students also face extraordinary mental health challenges and 18% of students lack access to a computer, laptop or tablet. Additional government support is an urgent priority.

For a second year in a row, all of our students will be entering into a desperately challenging job market. Our universities want to play a full part in supporting graduates in their transition to work or further study. Government flexibility in the use of the Apprenticeship Levy and funding for bite-size qualifications, aligned to urgent priorities for higher-level skills and flexibility in using other sources of government funding, would make an immediate difference. These measures would also accelerate the positive contribution that universities can make in supporting the national recovery.

In combination, we believe these initiatives would ensure the Government can play its full part in ensuring fairness between generations – and that university students are not forgotten or left behind.

Read more: Student hardship: government funds should increase, parliamentary committee says

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