According to the Institute for Fiscal Studies, a graduate earning £30,000 will have to repay £113 more a year as a result of a ‘freeze’ of the student loan repayment threshold. This ‘freeze’ will come into effect in April, and the government hopes this will stabilise the student loan system. Previously, this threshold increased alongside average earnings. However, the current repayment threshold – earnings of £27,295 a year, £2,274 a month, or £524 a week – will not change, despite the fact that changes in average earnings would have allowed the threshold to rise by 4.6%.
In an update, Higher Education minister Michelle Donelan stated that, ‘it is now more crucial than ever that higher education is underpinned by just and sustainable finance and funding arrangements, and that system provides value for money for all of society at a time of rising costs.
‘This government has already confirmed that we will freeze maximum tuition fee caps again for the 2022-23 academic year, the fifth year in succession that we have held fee caps at current levels.’
‘Rise by stealth’
Nonetheless, senior research economist at the Institute for Fiscal Studies, Ben Waltmann, says that this move ‘effectively constitutes a tax rise by stealth on graduates with middling earnings’, as well as noting that ‘this will be a further hit to the real incomes of these graduates on top of the rising cost of living, the freeze in the personal allowance, and the hike in National Insurance rates.’
As a result, graduates with lower earnings whose wages don’t reach the repayment threshold for student loans will end up unaffected by this freeze. But those with much higher earnings will find themselves paying back these loans far faster.
Looking forward, Waltmann notes that, should this freeze remain in place for over a year, there would be ‘a much lower cost for the taxpayer and a much higher burden on graduates than they thought they had signed up for when they took out their loans.’
The Shadow universities minister, Matt Western, highlighted that the ‘cost of living crisis [was] made in Downing Street,’ with this latest stealth tax hike only contributing to the financial struggled faced by many.
Finance expert Martin Lewis of Money Saving Expert told the BBC that ‘whilst freezing sounds good, what it means in practice is everybody who is repaying will repay more each year and most people, the vast majority, will repay more towards their student loan in total.’
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