Threshold raised for student loans

From 6 April 2018, university graduates were able to earn more before they begin to repay their student loan.

Changes to student finance increased the repayment threshold for English and Welsh undergraduates who started during or after September 2012 from £21,000 to £25,000 a year, with the threshold to be adjusted annually to remain in line with average incomes.

The rise means graduates who earn above the new threshold will save £360 annually. Before April those who earned £26,000 a year would have had to pay 9 percent of £5,000, meaning a yearly repayment of £450. Whereas now leavers will repay 9 percent of £1,000, paying £90 a year.

Described as a “key milestone” by Universities Minister Sam Gyimah, the Department for Education says around 600,000 university leavers will benefit from the reforms over the financial year alone. English and Welsh graduates who took out loans before 2012, as well as students from Scotland and Northern Ireland, will also benefit from a slight increase in their repayment threshold to £18,330 a year from £17,775 — in line with inflation at 3.1 percent.

However, the threshold for postgraduate loans taken by those in England and Wales will remain at £21,000 a year. The alterations come alongside a temporary freeze in tuition fees at £9,250 a year, and a review of the student loan system and university funding set to conclude in 2019.

Research carried out by the Institute for Fiscal Studies (IFS) found that the lowest earning four percent of graduates will now be better off under the current system than they would have been under the pre-2012 system. Chris Belfield, an author of the report and Research Economist at the IFS, said while raising the repayment threshold for post-2012 loans is a seemingly small change, middle-earning graduates will save up to £15,700 in repayments over their lifetimes.

But Mr Belfield also highlighted the price of the new benefits to the taxpayer, “raising the longrun cost of providing Higher Education by £2.3 billion per year, an increase of 40 percent.”

In a statement, NUS VicePresident for Higher Education, Amatey Doku, said the new repayment threshold will be “a welcome relief for many of the lowest-earning graduates” but that they do not adequately address the rise in the cost of living.

“In recent years the expected repayment for the lowest-earning graduates has increased by 30 percent, thanks to the freezing of the cap at £21,000 instead of rising slightly each year.

“In making this change, the government has at least acknowledged that there are serious flaws in how we fund higher education in this country.

“I hope that this will not preclude a more indepth consideration as part of the upcoming review into post-18 funding, lest this becomes patching up the holes on a sinking ship.

“This will not change the fact that our maintenance model is fundamentally regressive – students from the lowest income families accrue £57,000 of debt, compared to £42,000 for their more privileged peers.”

No action is needed by graduates to receive the new savings, as any changes to repayments will be automatically calculated by employers for those paid through PAYE (pay-as-you-earn), or as part of the self-assessment return to HM Revenue and Customs.


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George Goldberg

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May 2022
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