£12bn will be added to the deficit due to a change in how student loans are recorded, following an Office for National Statistics ruling.
The estimated amount not to be repaid of 45% of lending, will be reclassified as public spending.
It is thought that this may provide an incentive to reduce tuition fees now that student loans will significantly push up the UK’s deficit.
The decision by the statistics agency tackles an anomaly in which the cost of lending to students, to cover fees and maintenance, has been missing from the public finances.
It will significantly increase the deficit – which is the difference between what the government spends and what it receives.
Nicky Morgan, chair of the Treasury select committee and former education secretary, welcomed the ruling – saying the current loans system lacked scrutiny when the government could “spend billions of pounds of public money without any negative impact on its deficit target”.
The independent economics think-tank, the Institute for Fiscal Studies, says the accounting system has been “absurdly generous” to the government’s finances.
It says the effort to reflect the real cost of the fees system, in which 70% of students will not fully re-pay, would bring public finances closer to “economic reality”.
The change applies across the UK, but most of this will be accounted for by lending to students in England.
For confidential, legal advice call our team of specialist solicitors on 0844 556 3525