Interest on student loans

David Farrar reports that the Vice Chancellors Commission has called for interest to be charged on student loans.

Of course, it is eminently sensible that students should have to pay interest on their loans.

Farrar goes on to note the silly fees maxima policy: we're constrained against raising tuition fees by more than (I think) 5% in any year. I agree that the policy should be removed and tuition should be allowed to vary in line with the market.

But I can understand why the government would want a fee maxima given that they won't get rid of zero interest loans. If fees go up, students take out larger loans at zero percent and the government's ledger looks worse. Prior to zero-interest loans, the policy made no sense at all. But I can understand the second-best case for it now from the government's perspective.

Domestic fee maxima combined with capped enrollment numbers (we get no additional per-student funding beyond X students) means that our College loses money on the marginal student.

Most likely result, I'd reckon, is that we start by imposing progression standards to knock out some low performers. If the marginal student remains a loss-making student, we then move to limitation of domestic entry. We'd also push harder for international students whose fees are not capped and for grad students who attract PBRF funding, though in a zero-sum game with all other universities as the PBRF budget is fixed. I'd expect that every school in the country is facing the same calculus. We might also see some shake-ups in degree structures to make them more palatable for international students. Interesting times. All of this is, of course, only my idle speculation, standard disclaimer, etc.

Farrar reckons that the government could increase the fee cap without making the courageous decision to charge interest on its loans. I'd bet that Treasury has costed this out for the government, and I'd bet that the Government is a bit worried about the effect this would have on the amount it doles out in student loans.