Snapshot: the accounting treatment of student loans

Posted on August 4, 2015 · Posted in Accounting & Business

The accounting treatment of student loans is driving policy in ways that damage student finances, universities, apprenticeships and science research, according to a report from the Higher Education Policy Institute (HEPI). The balance sheet value of the student loan book has declined markedly in recent years, as the level of debt non-payment has risen. Attempts at selling the student loan book have been frustrated, while the liabilities can only be taken off-balance sheet if there is a realistic prospect of their sale.

An £800m cut to the budget of the Department for Business, Innovation and Skills was avoided for 2013/14 through the adoption of new accounting conventions – but HEPI argues these created incentives to control the issuing of student loans and increase repayment rates in ways that will cause problems for students and higher education institutions (HEIs). HEPI predicts restrictions of maximum tuition fees for most courses at most HEIs and the strengthening of repayment terms for borrowers.

The new accounting conventions require shortfalls in the repayment of student loans to be met from the BIS budget. That can be expected to lead to cuts in departmental programmes, such as scientific research and apprenticeships, says HEPI.

* £9bn, the outlay of student loans in 2013/14

* £1.5bn, repayments received on past student loans in 2013/14

* £33.3bn, the value of the student loan book in 2013/14

* £12bn, the likely cost of new student loans issued in 2015/16

* More than £100bn, the Office for Budget Responsibility’s projected impact of student loans on public sector net debt by 2035.

Source: The Accounting and Budgeting of Student Loans, the Higher Education Policy Institute