How would changes to student loan repayments affect you?

Students could face higher salary deductions for their student loans, as the Government considers reducing the threshold.

The threshold could be slashed from its current level of £27,225 to £23,000, though no official announcement has been made.

Chancellor Rishi Sunak is set to deliver his Autumn Budget on 27 October. If the change to student repayments is made, this would be the time for it to be announced. The move would bring in an extra £2 billion for the government, if enacted.

What does it mean for your budget?

At present, graduates only begin paying back their student loan once they are earning a minimum of £27,225 per year.

The move would mean the repayments of a graduate earning £30,000 a year would triple from £243 a year to £800 a year compared with £20 a month or £243 a year now.

Martin Lewis, Money Saving Expert, said in an interview with Financial Times that lowering the threshold would be a “breach of natural justice.”

Graduates must repay 9% of their monthly income for plans 1, 2 and 4 of anything they earn above the level of the threshold, which continues until their loans are repaid, or 30 years has passed.

Postgraduates repay 6% of the amount they earn over the threshold for the Postgraduate Loan.

A lower threshold would allow high-earning graduates to pay off their loans more quickly, avoiding high interest rates, but would force lower-earning graduates into higher long-term repayments.

Lewis said this decision could present a “risk to the nation’s fertility” if higher salary deductions make graduate workers delay starting a family.

Backlash from students

The suggestion was made in the 2019 Augar review of student finance proposal suggested by the former universities minister David Willetts.

The review followed his introduction of increased £9,000 tuition fees in 2012, creating the current student finance system.

Jo Grady, the general secretary of the University and College Union, says: “Lord Willetts, as the architect of £9k tuition fees, cannot claim to be concerned about the high levels of student debt while simultaneously proposing to hit lower-earning graduates with debt repayments.”

Combined with the recent tax increase in National Insurance that will go ahead in April 2022, it seems that recent graduates are at odds with “so many knock-on issues”, as described by Lewis.

This could potentially cause a lot of students to opt out of their pension plans to boost their student loan repayments.

“That’s one form of financial disaster, but the spread of this is so much wider than this,” he said. “You could even argue there’s a risk to the nation’s fertility because if people are shelling out so much money in early days, people tend to put off when they want to start a family.

Photo by Rochelle Nicole on Unsplash