Government announces big changes to Student Loan repayment system
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.
Update: This has been edited based on the Institute for Fiscal Studies’ updated estimations in March 2022 – their analysis found that lower and middle-earning graduates will be hit even harder by the changes than initially thought.
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 organizations like ourselves, the government would rethink its plans and scrap them. However, it’s been announced 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.
What’s more, current students and graduates, as well as anyone from England and Wales who starts uni before the 2023/24 academic year, will also be impacted by a change in the way the repayment thresholds will be adjusted from the 2025/26 financial year onwards.
Read on for the key things to know.
Changes to the Student Loan repayment system
Here’s an overview of the Student Loan changes affecting 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 the Retail Price Index (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 RPI rather than RPI plus a percentage of up to 3% as it is currently.
And this is a change that will impact everyone already on Plan 2 loans, as well as those who start uni in 2022 or earlier:
- The repayment threshold will begin to increase annually by RPI from April 2025 (it has previously been increasing in line with the average earnings growth).
Lowest-earning graduates will repay more, but the highest earners will repay less
For graduates from the 2023/24 cohort or later who go on to earn the highest salaries, the changes could save them money as they’d have already been likely to repay their loan in full under the current system. 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 around £25,000 across their lifetime.
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 £28,000 more. The Institute for Fiscal Studies (IFS) explains this in a bit more detail here.
Then, when we look at the change that also affects everyone on Plan 2 loans (increasing the repayment threshold in line with RPI each year instead of average earnings growth), this too could negatively impact graduates on lower incomes.
The IFS estimates that students who start uni in 2022 who go on to have lower middling earnings could be £19,000 worse off due to the changes:
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 fees and living costs. However, for many students and their families, this just wouldn’t be possible.
Petition against the Student Loan repayment system changes
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 Student Loan changes, click the button below to sign our petition and share it with your friends.