Huge shake-up to student loan payments to hit millions of young people

By Isabella Boneham
Thursday, 24th February 2022, 11:29 am
Updated Thursday, 24th February 2022, 11:29 am

Millions will be hit by a new “stealth tax" under Government plans to force young people to start repaying their loans earlier in an effort to reduce high levels of student debt.

The move comes as part of the Government’s response to the 2019 Augar Review, which called for a major shake-up to post-18 education.

The Education Secretary Nadhim Zahawi said the system would create a fairer system for young people and the taxpayer.

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Whereas critics said the shake-up to student financing would hammer poorer students.

Here’s what you need to know about the government’s changes to student loans and what else they are considering.

What are the new reforms to student loans?

University graduates starting their courses from next September will begin paying off their debt when they earn more than £25,000-a-year - down from £27,295.

The existing threshold will be maintained for current students until April 2025.

The length of time graduates have to pay off their loan will be extended to 40 years - meaning some will be repaying their student debt into their 60s.

Currently outstanding debt is written off after 30 years, so only 23% of students ever repay their loan in full.

But the changes to the plans will mean 52% of borrowers will pay off their loans, according to the Department for Education.

What other measures are being considered?

The announcement on Thursday 24 February included plans to cut the cost of foundation year courses and a new national state scholarship - that aims to support high-achieving students from disadvantaged backgrounds access higher education, further education and apprenticeships.

A consultation will look at creating a Lifelong Loan Entitlement (LLE), worth around £37,000 or the equivalent of four years of post-18 education, to support students to study, train, retrain or upskill at any stage.

Education Secretary Nadhim Zahawi said: “Our country’s world-leading universities and colleges are key to levelling up opportunity by opening up access to a range of life-long, flexible post-18 options to help people train, retrain and upskill.

Ministers will also publish a consultation on whether to impose minimum entry requirements of Level 4 GCSE passes in English and Maths or two Es at A-Level.

This means pupils who fail their Maths and English GCSEs - or get lower A-Level grades - could be disallowed from getting student loans.

Around 4,800 university students last year didn’t get these passes in their GCSEs.

What has been ignored?

Despite a call to slash tuition fees to £7,500-a-year, the Tories have quietly rejected this.

Instead they have decided to keep the annual cap at £9,250 until 2024/25.

Student loan interest rate will be set at RPI+0% for new borrowers starting courses from 2023/24.

High demands for the return of maintenance grants for poorer students, which was axed in 2016, has also been ignored.

Why are the reforms being made?

The new measures are part of the efforts to reduce the high levels of student debt, with a total bill of £161 billion at the end of March 2021.

It is forecast to rise to £500 billion by 2043.

The Education Secretary has backed the reforms as measures that will hugely benefit students, leading to opportunities and balancing the burden on loans.

The Education Secretary said: "This package of reforms will ensure students are being offered a range of different pathways, whether that is higher or further education, that lead to opportunities with the best outcomes – and put an end once for all to high interest rates on their student loans.

"I am delighted to oversee such a substantial amount of investment – nearly £900m - reinforced by a revised, fairer, and more sustainable student finance system which will keep Higher Education accessible and accountable.”

He added the changes would “rebalance the burden of student loans more fairly between the student and the taxpayer and ensure that in future graduates don’t pay back more than they borrowed in real terms”.

What has been said about the new reforms?

The Education Secretary’s Labour counterpart, Bridget Phillipson, does not support the Tories new reforms, accusing them of creating more problems.

She said: "The Tories are delivering another stealth tax for new graduates starting out on their working lives which will hit those on low incomes hardest.

“Instead of fixing the broken system these changes simply store up problems for the future. Ministers are kicking the can down the road while seeking to limit young people’s aspirations to study at university.”

She said it was "insulting" for the Government to rubbish degrees that young people were working hard for.

Martin Lewis, founder of MoneySavingExpert.com, warned that most university leavers would pay thousands of pounds more for their degrees over their lifetime than they do now. “It’s effectively a lifelong graduate tax for most,” he said.

“Only around a quarter of current leavers are predicted to earn enough to repay in full now. Extending this period means the majority of lower and mid earners will keep paying for many more years, increasing their costs by thousands.”

On plans to bar students with lower grades, Sir Peter Lampl, executive chair of social mobility charity the Sutton Trust, said: "The introduction of any minimum grade requirement is always going to have the biggest impact on the poorest young people, as they are more likely to have lower grades because of the disadvantages they have faced in their schooling."

Geoff Barton, General Secretary of the Association of School and College Leaders, welcomed attempts to tackle the issue but warned higher education cannot be the "preserve of an academic elite".

He said: "We cannot escape the conclusion that these reforms represent an attempt to save money by reducing the number of students who access higher education and extending the loan period to make sure that they pay back more.

“The appeal to the Treasury is obvious but the hardest hit will once again be our most disadvantaged young people."

A version of this article originally appeared on NationalWorld.com