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ERIC Number: ED529942
Record Type: Non-Journal
Publication Date: 2010-Mar
Pages: 50
Abstractor: ERIC
Reference Count: 20
ISSN: ISSN-2045-6557
Interest Subsidies on Student Loans: A Better Class of Drain. CEE DP 114
Barr, Nicholas; Johnston, Alison
Centre for the Economics of Education (NJ1)
The British system of student loans has a zero real rate of interest, less than it costs the government to borrow the money. This paper discusses the problems that arise from interest subsidies in the UK system of student loans; systems in other countries, for example Australia and New Zealand, face similar problems. The topic appears to be narrow and technical, and of significance only to the most nerdy of commentators, so the opening section sets out the broader context in order to establish the educational importance of the issue, not least that the cost of interest subsidies is a contributory cause of the current shortage of university places. The second section explains why the interest subsidy is a major distortion with strategic and unintended ill-effects: interest subsidies tip large volumes of taxpayer resources down the drain with no educational benefit. The third section offers indicative estimates of the impact in terms of cost saving and distributional effects of different policies for addressing the problem. The concluding section sets out the wide range of desirable policy options that result from charging an interest rate related to the government's cost of borrowing. (Contains 5 boxes, 5 figures, 4 tables and 23 footnotes.)
Centre for the Economics of Education. London School of Economics and Political Science, Houghton Street, London, WC2A 2AE, UK. Tel: +44-20-7955-7673; Fax: +44-20-7955-7595; e-mail:; Web site:
Publication Type: Reports - Descriptive
Education Level: Higher Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: Centre for the Economics of Education
Identifiers - Location: United Kingdom