OBR writes down estimated graduate repayments

There was nothing in the Budget about the sale of student loans. But the Office for Budget Responsibility has quietly let slip a big revision to student loan repayments to 2018/19 inclusive.

§4.162 Our forecast for new student loan outlays is little changed from December. The forecast for the repayment of English loans now makes greater use of Student Loans Company data, in addition to survey data, and also makes greater use of historic earnings data to project forward individuals’ future earnings paths. These changes have widened the projected earnings distribution over time, which, since payments are only due over a particular threshold, has reduced our forecast for aggregate repayments. As a consequence, we now expect greater write-offs beyond our medium-term forecast horizon, and will update the longer-term projections in our next FSR, to be published in July.

What this means is that low earning graduates are estimated to be earning less than previously thought.

While we await the longer range numbers, here’s what’s in the footnotes to Table 4.35

In December, the estimated annual graduate loan repayments received in 2018-19 were £3.2billion. Nearly 20% of repayments have been written down. The total payments received over that six-year forecast period being £2.5billion lower than was thought three months ago.

This may present difficulties for BIS’s budgets in the near term and certainly poses acute questions for any attempt to sell loans issued to those starting undergraduate study before 2012. Can loans be priced fairly in any robust manner when we are seeing such fluctuations? Won’t potential buyers want protection against risks?

We shouldn’t be surprised now if the estimated loss on loans is revised upwards again from the most recent official figure of 40 per cent.

The OBR’s figures for December already incorporated the reduction in repayments due to sales of loans to third parties (who receive the payments instead of government).

Update

This blog was corrected to show that estimated repayments from 2013/14 to 2018/19 are now £2.5bn lower than was estimated in December.  The original £1.8bn figure used in the post reflected the downwards revisions in December’s estimates that largely reflected the impact of the planned sale on repayments coming to government. Thanks to John Morgan for alerting me to the original slip.