15/01/2012 05:38 GMT | Updated 16/03/2012 05:12 GMT

Unpaid Student Debts Could Cost Taxpayer £9bn A Year, Says Skandia

Unpaid student debts could cost the taxpayer around £9bn a year, a report released on Sunday revealed.

According to research by investment managers Skandia, unless students immediately earn a £50,000 salary upon leaving university, a "significant amount" of their debt will be written off.

The report estimates that if the number of university applicants remains the same, this will cost the Government £8.7 billion in 2045. The figure is dependent on interest rates and the number of students, but it could rise to £9.6 billion.

Plans to triple fees to a maximum of £9,000 were approved by MPs in December 2010, which gave rise to demonstrations across the capital last month. For most, the tuition fees will be paid for with a loan and any part of this loan which is unpaid after 30 years will be written off.

Graham Bentley, head of investment strategy at Skandia, commented on the report, entitled First Steps to Wealth: "Those who are able to study for a degree can expect to earn a good living over their lifetime even if they don't get the job of their dreams straight away and despite incurring costs to complete the course.

"On average, the additional salary received by graduates more than off-sets the debt incurred in studying for a degree."

He added: "Perhaps the biggest challenges highlighted in this study are for the Government."

Universities and Science Minister David Willetts argued higher education remains a "very good investment" as it continues to be "life-changing for most students".

"It is fair that graduates should contribute more to the costs of their own education, and our reforms ensure well-funded universities, while avoiding cuts to student numbers.

"We are also increasing maintenance grants for poor students and reducing monthly repayments for all graduates. Like all long-term spending forecasts, the future costs are sensitive to the assumptions used.

"However, our figures are in line with those from the independent Institute for Fiscal Studies."

A spokesman for the TaxPayers' Alliance added: "In future our universities will be funded much more by the fees they can earn from their students, and those fees will be financed not by taxpayers but by the students themselves, via higher student loans. This is exactly as it should be.

"Not only are the students the principal beneficiaries of their degrees, but by forcing students to think seriously about the value of a degree, we will force the suppliers to deliver that value more effectively.

"This is a feature of the new fees system that ensures that high earning graduates pay for their education, not less fortunate taxpayers. But it also means that students who don't do so well won't be left with permanent debts."