Accounting for student loans: How we are improving the recording of student loans in government accounts.
The ONS today announced its decision on how it will treat student tuition fee and maintenance loans in the government’s accounts. David Bailey has published a blog explaining ONS's role and why they have taken this decision. In addition, they have published a technical note, giving further information about how they came to their decision.
Before the review, student loans were not recorded as a cost until after 30 years, when unpaid debts are written off. The change now means that a ‘partitioned approach’ will be taken and treat part of student loans as financial assets and part as expenditure.
The change will have no impact on the support currently available to students. There is no impact on the value for money case for the student loan sales. The ONS has said this change will come in later next year.
The ONS review prompted the delay of the Government’s post 18 review into university funding led by Philip Augar. The review is expected to make recommendation on higher education funding and is rumoured to advocate for a reduction in student tuition fees to £6,500.
A coalition of six leading charities working to increase the numbers of students from disadvantaged backgrounds in to higher education, warned about the consequences of a cut to tuition fees in a meeting with former Universities Minister, Sam Gyimah last month.
Sector response to the announcement on the treatment of student loans in the national accounts by the Office for National Statistics (ONS)
Andy Ratcliffe, chief executive of Impetus-PEF said:
“Whatever the ONS recommends, it won’t make the slightest difference to the likelihood of young people from disadvantaged backgrounds getting into university. They are half as likely to make it than their better off peers. In all the talk of how higher education should be funded and accounted for in the public finances, the gnawing access gap between poorer students and their better off class mates is being forgotten.”
“The Augar Review poses a near and present danger for the prospects of young people from disadvantaged backgrounds getting into university. A cut in student fees along the lines proposed would wipe out the £860 million of widening participation funding that is earmarked to help students from poor backgrounds get the benefit of a degree that their better off class mates take for granted. Together with the suggested restrictions in students’ numbers, disadvantaged students’ chances of getting to university will become doubly difficult.”
“With the latest Government figures showing that the progress of poorer students into university has stalled, now is not the time to cut back on the funding that has transformed the lives of disadvantaged young people.”
Better accounting of student loans to increase headline measure of the government’s deficit by around £12 billion a year
Jack Britton, Carl Emmerson and Thomas Pope, IFS Authors, said:
"Today, the Office for National Statistics has announced that it will be revising the treatment of student loans in the public finances. This is a sensible move as it aligns the accounting treatment more closely with economic reality.
"Even though it makes no difference to the long-run cost of Higher Education financing, the announcement has significant implications for the headline measure of the deficit, which the OBR estimates will be £12 billion higher this year, and £17 billion higher in 2023–24 as a result. In general, policy decisions should not be affected by changes in accounting treatment, but to the extent to which they are, the implications for Higher Education policy could be significant."
Nick Hillman, Director of the Higher Education Policy Institute, said:
"The 180-degree flip by the Office for National Statistics may seem embarrassing for policymakers but it is more embarrassing for the official accountants, who are changing how they regard investment in higher-level skills.
"The ONS will move on and the politicians will fall in line. Meanwhile, students are likely to get hit because they suddenly look much more costly to current taxpayers, while the extra income tax they will pay as graduates in the future continues to be ignored. Unless we are careful, we are at risk of sleepwalking into a triple whammy of fewer university places, less funding per student and tougher student loan repayment terms.
"Higher skills are the best way to raise productivity and the best way to insulate the country from any negative economic effects of Brexit, such as fewer skilled migrants. Moreover, our schools are full to bursting and the increase in young people will start to hit universities just after we start counting students as a much bigger current cost, potentially putting today’s school pupils at a particular disadvantage.
"Over 20 years ago, the Dearing report looked at “treating loans in the same way as grants”. They concluded “It misleads rather than informs.” While some aspects of the recent accounting of loans are unusual, there is now a big risk that, without due care and attention, we will shuffle backwards and fall into the same old trap."
Alistair Jarvis, Chief Executive of Universities UK, said:
“At a time when demand for highly-skilled graduates is growing, it is essential that universities are properly and sustainably funded to ensure students receive the high quality university experience they rightly expect. That means avoiding kneejerk reactions to the ONS review which would reduce the amount universities receive per student or lead to fewer students being able to benefit from higher education. Cuts to fees or capping student numbers risks throwing the progress that government and universities have made on social mobility into reverse.”
UCU head of policy and campaigns Matt Waddup said: “Successive governments’ funding reforms have done nothing but raise fees and student debt"
Jonathan Athow, ONS Deputy National Statistician for Economic Statistics, said:
“We produce national accounts, ensuring that government receipts and spending are properly recorded.
“To ensure our treatment of student loans better reflects the way the system works in practice we will split the government’s student loan payments into a portion that will be repaid and is therefore genuine government lending and a portion that is not expected to be repaid, which will be treated as government spending.
“When coming to this decision we consulted widely with many other countries and international bodies to ensure that our figures remain internationally comparable.”
David Bailey, Head of Public Sector Division at the Office for National Statistics, said:
"While there are no direct policy consequences, as the borrowing targets set by government are based on ONS’s statistics, the implications of a change in statistical accounting may be used by government departments to inform their policies.
"We have undertaken substantial work and consultation to reach our decision and are confident that this will ensure student loan payments are properly recorded in the government’s accounts."
A DfE spokesperson said:
"This is a technical accounting decision by the independent ONS. It does not affect students, who can still access loans to help with tuition fees and the cost of living, which they will only start repaying when they are earning above £25,000.
"Our balanced approach is getting debt falling while supporting our public services, keeping taxes low, and investing in Britain’s future."