Universities face loans bill

The Commons education and employment committee is urging the government to adopt an ‘accounting wheeze’ that could add hundreds of millions of pounds to university budgets.

A report by the committee states that, by changing accounting rules, the cost of student loans could be passed from government spending totals to the universities, removing it from the public sector borrowing requirement.

The MPs agreed with academic economists from the London School of Economics that a different treatment of expenditure on student loans could yield a substantial annual sum.

The report said: ‘There is a pot of gold here which can be released by different accounting mechanisms’. Current Treasury rules require all sums paid out as student loans to be treated as public expenditure in the year that they are made, and for repayments to count as ‘negative public expenditure’.

The committee said its proposal would amount to early adoption of resource accounting, due to be introduced in 2001, under which only the proportion of the loan relating to interest subsidy and bad debt provision would count as expenditure. It said that the remainder of the loan was being used to finance an asset acquisition in the shape of academic education.

The committee suggested universities should take over the administration of student loans and finance them from borrowing in the markets against their assets, claiming that since the university institutions were not part of the public sector, the transactions would not count as public spending.