The Scottish National party first won power at Holyrood on a promise of abolishing all student debt, but quickly found that was unaffordable. Instead, student borrowing in Scotland is increasing at a record rate, by more than £500m a year.
A forecast for the Guardian by Lucy Hunter Blackburn, a specialist in higher education funding, predicts that Scottish students and graduates will owe a total of £6bn by 2021 – triple the £2bn in borrowing when the SNP took power in 2007. On top of that, a further £2bn will have been paid off by graduates in work by 2021.
Student debt is very different from other areas of borrowing. It is a substantial additional cost to Scottish families and taxpayers, because it is owed to the government by graduates. Official statistics show that about 445, 000 Scots are currently repaying student loans, with another 15, 000 to 20, 000 graduates joining that list each year.
But the loans do not come directly from day-to-day government spending. Instead they come from a ringfenced pot set aside by the UK government solely for funding loans through the Student Loans Company.
As part of a complex accounting process, the Scottish government annually writes off about 30% of each year’s student borrowing to cover expected non-repayment of debt and its subsidy of a low interest rate. Some borrowers will fail to earn enough to repay their whole loan and others will default.
The Scottish government will have allowed an estimated £2bn for such write-offs by 2021. Over the next six years, that write-off will equal an estimated £1bn.
Although the money is financed at UK level, that debt counts as an asset on the Scottish government’s books because it is notionally owed to it by hundreds of thousands of former students, as its share of the UK student funding pot. It is now the Scottish government’s largest financial asset, worth more than £2.5bn – more even than the debt owed by Scottish Water.
The rate of Scottish student borrowing – and the costs to students and graduates – accelerated sharply in 2013 after ministers changed policy on student funding. They promised students a “minimum income” of up to £7, 250 (now £7, 625) a year but did so by deliberately shifting them from state-funded grants onto loans. The maximum grant was cut from £2, 640 to £1, 750.
Eligibility for grants was also tightened by lowering the household income threshold for maximum grants, further increasing the debt burden on poorer students. More than 20, 000 students from Scotland’s poorest households took out loans last year and also borrowed the most per head, compared with fewer than 1, 900 students known to be from the most well-off homes.
The effect of that policy change in 2013 was to dramatically increase overall student borrowing and cut minister’s direct funding of grants. Gross new annual lending jumped from £269m in 2012-13 to £436m the following year.
Annual new student borrowing broke the £500m barrier last year, hitting £516m in total on 2014-15. Hunter Blackburn’s analysis shows that on current rates of growth, students will be borrowing £638m a year by 2021, with Holyrood writing off £185m of that from a ringfenced fund specifically for student borrowing.
Student debt in Scotland would have increased under previous Tory, and Labour-Lib Dem coalition policies. How fast it would have grown had the SNP kept the graduate endowment policy it inherited from the Labour-Lib Dem coalition at Holyrood is a difficult question.
Ministers would always have faced pressure from students to provide more upfront support and loans are the easiest way to do that, as the Tories first found in 1990. While the SNP’s abolition of the graduate endowment in 2007 reduced borrowing, the 2013 grant cut, affecting poorer students only, has wiped out that benefit, with the resulting debt now concentrated on poorer students.