The government has announced drastic plans to lower the repayment threshold and extend the repayment period for future students – but the changes could lead to a shocking inequality.
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When we first heard speculation that the government was planning to reduce the Student Loan repayment thresholds of some Student Loans last year, we were disappointed, to say the least.
We had hoped that, given the backlash from students and organisations like ourselves, the government would rethink its plans and scrap them. However, it's been announced today that students who start university in 2023 will face major changes to the Student Loan repayment system, based on recommendations from the Augar review.
These changes will lead many lower-earning graduates to repay more than they would have done under the current system, while the highest-earning graduates will repay less. For the government to introduce a system that negatively impacts those on lower incomes is shocking.
Read on for the key things to know.
We've set up a petition against the changes (more info below). If you'd like to join us in urging the government not to make these changes to the Student Loan system, please sign it and send it to your friends.
Changes to the Student Loan repayment system
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Before we explain the changes to the Student Loan system in more detail, it's important to highlight that, currently, the changes are only set to impact future students in England.
Here's an overview of the changes (these affect students in England who start uni from September 2023):
- The repayment threshold will drop from £27,295 to £25,000. This will increase each year from the 2027–28 financial year (which runs from April to April) in line with RPI.
- Graduates will need to repay their loans for up to 40 years, rather than 30 years.
- The interest rate will be cut so that it's only the rate of the Retail Price Index (RPI) rather than RPI plus a percentage of up to 3% as it is currently (more info here).
Reducing the threshold to £25,000 could cost the average graduate £1,000s more over their lifetime. Just like the upcominghike in National Insurance payments, it will be the middle and lowest earners who are hit the hardest by the change to the repayment threshold.
This is because, not only will many graduates need to start making repayments earlier if their income is between £25,000 and £27,295, but they will also need to repay more each month.
Graduates are required to repay 9% of whatever they earn over the threshold. For someone on a £28,000 salary, they'd need to repay around £5 a month with the current threshold of £27,295. But, with a repayment threshold of £25,000, repayments would increase to about £22.50 a month.
Lowest-earning graduates will repay more, but the highest earners will repay less
For graduates on the highest salaries who were already likely to repay their loan in full, the change could save them money. The bigger monthly repayments could result in them repaying it all sooner, meaning there's less time for interest to be added to the debt.
On top of this, as interest rates will be cut down to just RPI, rather than RPI plus up to 3%, the overall amount they'll need to repay will be lower. It again speeds up how quickly they can repay their loans in full, and further cuts down the amount of added interest they'll need to repay.
Overall, graduates in approximately the top 30% of earners will repay less, with the very highest earners saving up to £20,000 across their lifetime.
However, for graduates on lower incomes, the overall amount they'll need to repay will likely increase. As their loans will no longer be wiped after 30 years, they could be making repayments for up to 10 more years.
Even though the added interest will be lower than it would have been under the current system, it could still be added to the total debt for another 10 years, making it even harder for grads on the lowest incomes to repay their loans.
Under the new system, the majority of graduates will repay more than they would have done with the current repayment terms – this could be as much as £10,000 more.
Here's a graph to illustrate this, based on data from the Institute for Fiscal Studies (IFS):
Note: These are estimates based on IFS data where assumptions have been made.
For current students and graduates with Plan 2 loans (this affects students in England and Wales who took out loans after 2012), the government has announced that their repayment threshold will be frozen at £27,295 up to and including the 2024–25 financial year.
Students will need to meet minimum entry requirements to get Student Loans
The above news is disappointing enough, but the government is also consulting on whether students will need to have at least a grade 4 pass in GCSE (equivalent to what used to be a C grade), or two Es at A Level to access Student Loans.
We really hope this change isn't introduced.
Passing English and/or Maths at GCSE is not necessarily an indicator of whether a student will succeed in their chosen subject. And, on top of this, the inequality of it is incredibly unfair.
Students from higher-earning households could still have the ability to attend university if their parents can cover their tuition and living costs. However, for many students and their families, this just wouldn't be possible.
This all comes weeks after the government announced an energy bills package that we estimate could leave students £100m worse off than those fully eligible. The government is repeatedly overlooking the needs of the majority of students, and this needs to change.
If you'd like to join us in calling for the government to reverse these planned changes and introduce a fairer Student Loan system for students, please sign our petition.
Save the Student's response
Our Head of Editorial, Tom Allingham, says:
We're extremely disappointed by today's announcement that the government plans to reduce the Student Loan repayment threshold and extend the repayment period for new students.
We estimate that the middle-earning graduates of the future will be the hardest hit by these reforms, in many cases repaying over £10,000 more across their lifetime. By contrast, the highest-earning graduates will see their lifetime repayments drop, by as much as £20,000 in some instances.
The proposed combination of a lower repayment threshold and a cap on interest rates means that the highest-earning graduates will not only accrue less interest on their debt each month, but repay over a shorter period too.
On the other hand, under the current system, middle- and lowest-earning grads are unlikely to fully repay their loans, and often won't repay the amount they borrowed excluding interest. Starting repayments sooner and being committed to them for longer will inevitably cost this demographic more, and they're far less likely to see any benefit from a cap on interest, beyond the psychological.
Given our findings that, on average, Maintenance Loans fall short of living costs by £340 every month, and that 52% of students are already worried about repaying their loans, it's hard to see this as anything other than the government showing a complete disregard for young people.
We've always known that changes can, have and will be made to the Student Loan system, but these would be among the most regressive yet. We'd strongly encourage students and graduates to join us in campaigning against these proposals.
Petition against the Student Loan repayment system changes
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At Save the Student, we're calling for the government to reverse the decisions to lower the repayment threshold and increase the repayment period for students starting in September 2023 or later.
Instead, we are urging them to keep the repayment period at 30 years and continue to increase the repayment threshold annually, in line with average earnings.
To join us in campaigning against the changes, click the button below to sign our petition and share it with your friends.
Keep up with our campaign on Facebook, Twitter and Instagram.
