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Book update – the estimated loss on loans

May 15, 2013

When we put the book to bed in January, the official government estimates put the loss on student loans at 32 per cent. That is, for every pound lent the government expected to receive 68p by 2046 in present value terms.

In February, the figures were revised upwards to 34 per cent and today David Willetts appears to have said that the loss on loans is now looking like 35 per cent ‘and could rise further‘.

By 2014/15, around £10billion of loans will be issued per annum these small percentage point changes represent big changes – roughly £100m per ‘click’ according to government and independent assessments.

We are awaiting one important bit of data for this first year of the new scheme – the amount of loan taken out to cover tuition fees.

Hefce reported in March that the number of such loans had fallen ‘from 916,600 in 2011-12 to 907,600 in 2012-13’. But with average tuition fees looking significantly higher (c. £8,250) than the assumptions used in the modelling (£7,000-7, 500) this drop in uptake may presage a bigger amount borrowed than anticipated.

This data may already be factored in to the new figure of 35 per cent. June’s Fiscal Sustainability Report and the Student Loan Company’s annual report will be revealing.

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