Labour’s university tuition fees rise will cost the Treasury an estimated £90 million a year, according to a leading economic think-tank.
The eye-watering toll comes because the higher fees will generate larger amounts of debt for graduates, some of which will ultimately be written off, the Institute for Fiscal Studies (IFS) warns.
Earlier this week, Education Secretary Bridget Phillipson announced that student fees for 2025/26 will increase by £285 from £9,250 to £9,535.
After receiving student loans funded by the taxpayer, graduates are then expected to repay 9 per cent of their earnings over £25,000.
But any outstanding debt is wiped after a 40-year period expires. Now the IFS estimates that the added cost of higher fees paid in 2025/26 across all students will be £390 million.
It says around three-quarters of this, £300million, will be repaid by graduates over the 40 years – but the remaining quarter, £90million, will remain unpaid.
File photo. Bridget Phillipson announced that student fees for 2025/26 will increase by £285
File photo. The move prompted backlash from the Tories and campaigners for students
Kate Ogden, IFS senior research economist, said: ‘That quarter that’s not repaid is the cost to taxpayers, and we estimate this will be around £90 million.’
But she added: ‘There are few things to bear in mind. This is dwarfed by the lifetime cost to graduates (£300 million).
‘It is also compared to an indefinite cash freeze in fees, which never looked sustainable.
‘And in addition, accounting for inflation, fees will still be much, much lower than they were in 2012.’
Tuition fees have not risen since 2017, when they were capped at £9,250 and did not rise with inflation.
It is estimated the £9,250 fee is now worth £5,924 in 2012-13 prices.
Paul Wiltshire, a parent campaigner on value-for-money in higher education, explained: ‘Higher loans will create more people who will never pay off their loans, so that the Government picks up the tab.’
He explained: ‘It matters because all of us, including the students who don’t pay their loans in full, will be paying higher taxes to cover this shortfall.’
The fee rise applies to current students who have already embarked on their courses, as well as new starters.
Under current rules, student debt starts accruing interest immediately – with the rate currently linked to the Retail Price Index at 4.3 per cent.
File photo. Tuition fees have not risen since 2017, when they were capped at £9,250
Laura Trott, the Conservatives’ newly-appointed shadow education secretary, said Labour was hiking tuition fees ‘when students can least afford it’
When he was campaigning to be Labour leader in 2020, Sir Keir Starmer pledged to ‘support the abolition of tuition fees’ but later rowed back on that promise
This week, the Department for Education would not rule out further fee rises, simply saying: ‘Longer-term funding plans for the higher education sector will be set out in due course.’
It comes amid huge pressure on university finances – with the Office for Students warning earlier this year that 40 per cent of universities in England were predicted to be in deficit in 2023/24.
Mrs Phillipson said: ‘Universities are autonomous institutions with business decisions to make work.
‘We are determined to work with the sector to make the necessary and right choices.’ She admitted that the fee increase had ‘not been an easy decision’.
