politics

Student loans repayment threshold could be slashed forcing Brits to pay hundreds per year


Sources have suggested the £27,295 threshold at which loans start being paid back could be slashed – with even a £2,000 cut in the threshold costing millions of graduates £180 a year

Repayment thresholds could be slashed under plans being examined by government
Repayment thresholds could be slashed under plans being examined by government

Brits face paying hundreds of pounds extra per year for decades under dramatic plans to slash the student loan repayment threshold.

Currently graduates on ‘Plan 2’ loans pay 9% of anything they earn above £27,295 a year to fund the cost of their university degree.

But Chancellor Rishi Sunak is reportedly considering a swingeing cut in this threshold to raise billions extra for the public finances.

It would add to the cost of living crisis for 20-something Brits, who also face a £139 rise in the energy price cap and a National Insurance hike.

The 2019 Augar review – which is being studied closely by the government – recommended a £2,000 cut in the threshold at which graduates repay.

This would add £180 a year to graduates’ repayments. But sources told the FT it could be cut even further.

The newspaper even raised the prospect of a £20,000 threshold – adding more than £600 a year too bills – though this was considered “a bit low”.











Chancellor Rishi Sunak is said to be considering the move
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Image:

PA)



A source told the newspaper “the plan” is to lower the threshold in the Chancellor’s Spending Review and Budget at the end of October.

The 2019 Augar review argued the 2018 decision to raise thresholds from £21k to £25k added £2.3bn a year of costs to the Treasury.

It also reduced the average student’s contribution over their lifetime from 65% to 50%, with many loans never paid back.

The review said at the time: “The current repayment threshold of £25,000 is higher than the median graduate salary three years after graduation of £22,80011 (2015-16 prices).

“And [it is] also in excess of the median earnings of all working age non-graduates which is around £23,000 (2017- 18 prices).

“We question the justification for a system which excludes so much of a borrower’s earnings from any repayment and which helps to reinforce the “no win, no pay” element in student choice.





“We believe that there should be a stronger expectation that student contributions will be made once a financial benefit is secured.

“For students in degree-level education we therefore recommend that the most suitable threshold is median non-graduate earnings.

“In 2018-19 prices, this would mean reducing the threshold from £25,000 to £23,000.”

A Department for Education spokesperson said: “The student loan system is designed to ensure all those with the talent and desire to attend higher education are able to do so, whilst ensuring that the cost of higher education is fairly distributed between graduates and the taxpayer.

“We continue to consider the recommendations made by the Augar panel carefully alongside driving up quality of standards and educational excellence and ensuring a sustainable and flexible student finance system.”


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