Recently, the government has changed the way students in the UK will pay back loans for their university experience and it does not look great for students. Experts have suggested that in the long run, it will be the poorest graduates who are hit by the changes to student loans and Money Saving Expert‘s Martin Lewis has said that the change is ‘big’. The Mancunion have looked at the numbers and government promises and tried to answer some of the biggest questions around what will be changing.
What’s actually changing?
From September 2023, graduates will start paying back their loans at the salary threshold of £25,000, roughly translating to £12.02 per year. This is a significant decrease, from the £27,295 threshold that had previously been in place, and brings the reality of paying back student loans much closer to graduates.
In addition, the repayment period has been extended from 30 to 40 years, meaning that some students will still be repaying their loans well into their 60s. The maximum students can be charged for fees will also be frozen at £9,250.
One bit of respite however is that the interest rate will be cut to RPI inflation, meaning that interest will only cover inflation on the loan and no further.
However, these change only comes into effect for those starting courses in September 2023, so current students will not be affected. This means that those graduating in 2026/7 will be the first to pay the new rates.
But what does it ACTUALLY mean?
So that’s the policy, but how will it affect those paying back student loans? Ben Waltmann, Senior Research Economist at the Institute for Fiscal Studies, said to inews: “While under the current system only a quarter can expect to repay their loans in full, more than 60% can expect to repay under the new system.”
Additionally, Martin Lewis has stated that ‘The plans will see most university leavers pay far more for their degrees over their lifetime than they do now. It effectively completes the transformation of student ‘loans’, for most, into a working-life-long graduate tax.” He also highlighted the state’s contribution will drop from 44p on the pound to 19p under the new system.
What have the government said?
The government began their press release for the changes by suggesting that the changes will be made fairer for students. They suggested “That more people than ever are going to university but too often, students are racking up debt for low-quality courses that do not lead to a graduate job with a good wage”, and justified the change saying the “cost of student loans is increasing quickly.”
