Thousands of EU students are obtaining 'free' educations at British universities thanks to a loophole that means they can easily avoid repaying their student loans.
Since 2006, students from EU member states have been eligible to receive loans to cover the cost of their tuition fees. In the case of UK students, loan repayments are automatically deducted through the tax system once income reaches a certain level.
No such system exists for students outside the UK, meaning repayments are only made if foreign graduates provide the necessary information about their earnings and set up their own arrangements. If an EU student returns to their home country and fails to inform the Student Loans Company of their whereabouts, there is little that can be done to recover the loan.
The revelations have uncovered a major flaw in the way the SLC administers to European students. Having failed to set up an effective means of ensuring monies loaned to EU residents would be repaid, regardless of where they are domiciled, the SLC has created a potential shortfall of tens of millions of pounds, all of which will ultimately have to be recovered from taxpayers.
At present, 42 per cent of EU students are either in arrears or their whereabouts are unknown. If the money cannot be recovered, the total losses to the Treasury could amount to more than £20 million. Financial penalties can be added to loans that are not repaid but this measure is ineffective if the debtor cannot be found.
Although legal enforcement can ultimately be used to help recover the missing monies, just nine students out of the two thousand or so who are in arrears have so far been taken to court. Judgements obtained in UK courts can then be passed on to European courts for further enforcement. The SLC hoped these initial cases would serve as a warning to other former students and encourage them to pay, but this does not appear to have been the case.
The amount owing is set to increase dramatically in the future due to a substantial increase in the number of students from EU member states and also the huge rise in the cost of tuition. From September 2012, the cost of tuition at most British universities will rise from £3,500 per year to an average of more than £8,000. This means the size of the average tuition loan will rise from £9,500 to around £24,000.
The rise means that the level of income at which British students have to start repaying their loans will increase from the current £15,000 per year to £21,000. But no changes are being introduced into the way monies are collected from students from the EU, so they will be able to continue to slip through the cracks.
The problem applies only to students from EU member states, as other international students are not eligible for tuition loans or any other form of financial assistance.
This guest post was contributed by IVA Experts and was written by Francesca, an English writer who is interested in finance and debt management.