UK government considering controversial new proposal to lower student finance repayment threshold

The plan, part of a broader overhaul of student financing predicted to save the Treasury £2bn a year, is set to lower the salary at which graduates begin to repay their student loans.

Image by Victoria Jones - PA

Chancellor Rishi Sunak is reportedly eager to overhaul student financing as part of his spending review before the autumn budget on Wednesday 27 October. The measure, first recommended in the 2019 Augar review of higher education, would see the threshold at which graduates begin repaying their student loans fall to £23,000. This year, the Higher Education Policy Institute think-tank recommended lowering the threshold to less than £20,000, but one minister told the Financial Times that such a figure was ‘a bit low’. 

Currently, graduates only begin to repay their loan when they earn £27,295 or more, but this announcement has caused significant controversy in the wake of last month’s health and social care levy. Consumer finance expert, Martin Lewis, has warned that it would disproportionately affect the lowest-earning graduates. He also questioned whether these changes would be retrospective, meaning students who have already signed contracts to repay would also be affected. 

Labour MP for Warwick and Leamington, Matt Western, echoed these concerns, taking to Twitter to criticise the Conservative Party for ‘widening the gap’ between the highest and lowest earners. He argued that female graduates and ‘those on lowest and middle incomes’ would ultimately pay £10,000 more, whereas wealthy graduates would be ‘virtually unaffected’. Estimates show that as a result of the new changes, graduates would be paying an extra £400 per year, and for longer.

In response to the controversy, a Department for Education spokesman told The Independent that ‘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.’ The main concern in the Treasury is that the taxpayer pays a disproportionate amount for university courses, and that graduates should therefore shoulder the burden of their fees. 

However, some senior conservatives have also been critical of the plan. Robert Halfon, MP for Harlow and chair of the Commons education committee, told The Guardian of his concern that ‘the cart is being put before the horse’. He suggested that, should the government follow through with such proposals, they should also lower the interest rates paid by students. Fellow Tory MP Chris Skidmore reiterated concerns over interest rates, saying it would be ‘morally unacceptable’ if they were to stay the same. Currently, interest rates are at 4.1% until 5 April the year after a university course finishes, when rates will then change depending on salary. 

NUS Vice President for Higher Education, Hillary Gyebi-Ababio, said: ‘we would be totally opposed to any plans on reducing the salary repayment threshold for student loans.’ She added that in light of the hardship faced by students during the pandemic - a Mind survey this summer found that 34% of young people’s mental health had deteriorated due to restrictions - alongside the increase in energy prices set to exacerbate financial problems for the lowest-earning, that ‘the injustice [of lowering the repayment threshold] is simply astounding.’