An impending review of the treatment of student loans in UK government accounts?is expected to dispel the ¡°fiscal illusions¡± that brought about the trebling of tuition fees and further jeopardise the chancellor¡¯s hopes of eliminating the deficit ¨C by adding billions to it.

The Office for National Statistics¡¯ review of student loans, scheduled for publication on 17 December, also has major implications for the government¡¯s review of post-18 education in England, which was delayed to take account of the ONS¡¯ conclusions.

The UK¡¯s student loans are repaid contingent on income, with outstanding balances written off after 30 years. On?, 45 per cent of outlay on England¡¯s post-2012 loans will be written off.

But in government accounts the borrowing is displayed as ¡°standard loans¡±, meaning that the outlay is not included in public sector net borrowing, the government¡¯s chosen measure of the budget deficit, and that interest on student loans is recorded as income.

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The government¡¯s Office for Budget Responsibility has described these presentational advantages of student loans as?.

These presentational advantages were put into sharp focus when the Conservative-led coalition took office in 2010. English higher education funding was switched away from direct grant towards student loans, to meet George Osborne¡¯s prioritisation of deficit reduction as chancellor.

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Gordon McKenzie, GuildHE chief executive and a former senior higher education civil servant responsible in Whitehall, said: ¡°Depending on the option ONS chooses [from four options on how to treat loans], it could add perhaps ?12 billion to the deficit at a stroke. But outside of accounting¡¯s dark arts nothing has changed ¨C the same cash still goes out the door.¡±

Nevertheless, the ONS review could thus further jeopardise the aim of chancellor Philip Hammond to eliminate the deficit by the mid-2020s.

Leaks from the government¡¯s post-18 education review, led by Philip Augar, suggest that it may recommend lowering fees to between ?6,500 and ?7,500.

The potential addition to the deficit arising from the ONS review is ¡°such a big number that the Treasury can¡¯t possibly recoup it all¡±, Mr McKenzie said. But ¡°to claw some of it back¡± the Treasury may look at ¡°making loan terms less generous for future students and ¨C if the leaks about Augar¡¯s thinking are true ¨C not topping up lower fees with enough money to fund the true costs of teaching¡±, he added.

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The ONS has said that implementation of a decision on how loans will be treated into ¡°headline statistics will take some time?and that any change will be reflected in the public sector finances by the end of 2019¡±.

Andy Westwood, professor of government practice at the University of Manchester, said that the ONS review ¡°effectively gives [Mr Augar] more choices and options as the new short-run ¡®costs¡¯ of the status quo may look more like the ¡®costs¡¯ of other options¡±, such as direct public funding.

john.morgan@timeshighereducation.com