Scrap repayment fees on student loans, architect of £9,000 tuition tells government

Student loans repayment fees must be scrapped because they are unfair, the architect of the system is to tell the government.

David Willetts, the former universities minister who orchestrated raising tuition fees to £9,000 per year, will urge a government review of the system to end the three per cent-above-inflation interest rate on repayments to preserve a "viable graduate repayment system that is politically acceptable".

Dropping the charge, which adds around £3,000 to student debts on graduation and an additional £13,000 on average by the age of 40, would cost the government £1.3bn.

Lord Willetts' comments have called into question the viability of a system which burdens students with tens of thousands of pounds worth of debt, a large proportion of which is never expected to be paid back.

In an interview with the Sunday Telegraph last month, he called the rate the "main pressure point" and admitted that he never “envisaged” inflation would hit three per cent when devising the mechanism used to calculate the interest rate applied to student debt.

Lord Willetts, now a Tory peer and chief executive of the Resolution Foundation think tank, said: “The interest rate calculation was put in to reclaim more money from the more affluent graduates... [I would] now look at interest rates and at bringing back maintenance grants for the least affluent students.”

The Institute for Fiscal Studies has expressed concern that the "very high" rate is greater than that applied to mortgages and commercial loans and the Treasury has become frustrated that some students are being "ripped off " by taking courses costing £9,000 a year but offering little in return.

Students are charged interest based on the Retail Price Index (RPI) plus three per cent and therefore currently stands at 6.1 per cent

Earlier this year, Theresa May was accused of copying Labour's manifesto when she announced that the government was to freeze tuition fees, raise the wage level for paying back student loans and ordering a wider review of the system.

Lord Willetts told The Sunday Times: "For the greater good of preserving a viable graduate repayment system that is politically acceptable, the extra 3% on the interest rate should be dropped. It was done to collect more money from affluent graduates but there are limits to that."