Student loan change adds £12bn to deficitA change in how student loans are recorded in the public finances will add £12bn to the deficit, after an Office for National Statistics ruling.
The amount expected not to be repaid, which could be 45% of lending, will now be reported as public spending.
Student lending will now significantly push up the deficit - providing an incentive to cut tuition fees.
The government said the change would be taken into account by the tuition fees review, due to report early next year.
Labour's shadow education secretary, Angela Rayner, said the ruling proved that the "student loans system is a fiscal illusion which flatters the government's record".
The decision by the statistics agency tackles an anomaly in which the cost of lending to students has been missing from the public finances.
The change has been welcomed by Nicky Morgan, chair of the Treasury select committee and former education secretary, who said the current system lacked scrutiny when the government could "spend billions of pounds of public money without any negative impact on its deficit target".
Nick Hillman, director of the Higher Education Policy Institute, said the "180-degree flip" will seem "embarrassing for policymakers".
But he warned it could mean less funding for students and universities as they "suddenly look much more costly to current taxpayers".
Approaching half of student lending is expected to be written off - and this will now have to be reclassified as spending, which the ONS says will push up the deficit by an anticipated £12bn.
This technical change could have major implications for the current review of university finance in England - which is considering whether to cut fees from £9,250 per year.
Higher levels of tuition fees require higher levels of lending - which will now show up as billions more on the deficit.
This will provide an incentive for the government to reduce the level of tuition fees, allowing them to limit the negative impact on the deficit.
The change applies to loans to students across the UK, but most of this will be accounted for by lending to students in England.
Much of university funding in England is now through tuition fees - and if fees were cut there would be questions about whether there would be a return to more direct funding.
Alistair Jervis, chief executive of Universities UK, warned against "knee-jerk reactions" to the ONS ruling which could cut spending on students or limit student numbers.
"It is essential that universities are properly and sustainably funded to ensure students receive the high quality university experience they rightly expect," he said.
https://www.bbc.co.uk/news/education-46591500
