University graduates are set to be paying back student loans well into their 60s under new government reforms that see student debt ‘wiped’ after 40 years, rather than the current 30. With this change, many graduates will therefore pay more over the course of their lifetime with the ten-year extension.
This means that a larger proportion of student loans are repaid, essentially functioning like a tax, reducing the responsibility of taxpayers for student loans. Furthermore, the proposed removal of interest rates from student loans after 2023 will mean that students won’t pay back more than they borrow, as they do under the current scheme.
However, graduates on lower income will end up beginning their repayment process earlier than under the current legislation. The current income threshold for repayment stands at £27,295 per annum but will be reduced to £25,000 for those whose courses begin in September 2023.
‘A working-life-long graduate tax’
Founder of MoneySavingExpert.com and financial expert, Martin Lewis, told the Independent; ‘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.’
However, current Education Secretary, Nadhim Zahawi has described this altered loan scheme as ‘more sustainable’, with it ‘putting an end once and for all to high interest rates on […] student loans.’ Despite Lewis criticising the new system for creating what is essentially a tax on university education, Zahawi asserted that his reforms will ensure that ‘higher education [is] accessible and accountable.’
Echoing these words, the minister for higher and further education, Michelle Donelan, maintained that the revamped process will provide a ‘fairer system for students, graduates and taxpayers’ that serves to ‘future-proof the student finance system.’
The Independent has reported that current government figures state that the outstanding loans by the end of March 2021 reached £16bn; a figure set to rise to a half a trillion pounds by 2043.