Students in England will repay their loans over 40 years instead of 30 | Student funding

Students in England will have to repay university loans over 40 years instead of 30 under sweeping reforms designed to save the Treasury tens of billions of pounds.

The number of students expected to repay their loans in full is set to double from less than a quarter (23%) to more than half (52%) following the changes, which will see many graduates paying for their degree up to retirement. in what has been described as a “lifetime tax on graduates”.

In a move designed to cut the pill, student loan interest rates will be cut for new borrowers and set at a level no higher than the rate of inflation from next year – but experts have said it would disproportionately benefit top-earning graduates.

The controversial measures form the backbone of the government’s long-awaited response to Augar’s post-18 education and funding review, which will be detailed in a statement to parliament on Thursday.

In a double whammy, graduates will also be told to start paying off their debt sooner after the government confirmed the repayment threshold will be lowered from £27,295 to £25,000 for new borrowers starting their courses from September 2023.

Annual tuition fees will be capped at £9,250 for a further two years, reducing costs for students but hitting universities, which have seen the value of tuition fees erode over the years due to the inflation.

The Department for Education (DfE) said the changes would ‘rebalance the burden of student loans more evenly between student and taxpayer and ensure that in future graduates do not repay more than they have borrowed in real terms”.

But Martin Lewis, founder of MoneySavingExpert.com, warned that most university leavers will pay thousands of pounds more for their degrees in their lifetime than they do now. “It’s basically a lifetime tax for the most part,” he said.

“Only about a quarter of the current [university] leavers are expected to earn enough to repay in full now. Extending this period means that the majority of low- and middle-income people will continue to pay for many more years, driving up their costs by the thousands. Yet the highest earners that would erase [their debt] in the current 30 years will not be impacted.

Bridget Phillipson, Labour’s shadow education secretary, has accused the government of imposing another stealth tax on new graduates, which will hit those on low incomes the hardest.

Student finance measures aim to stem soaring student loan costs. At the end of March last year, the value of outstanding loans stood at £161bn and is expected to reach around £500bn by 2043, the DfE said.

While currently the department expects graduates to repay 59p for every pound over the life of their loans, under the reforms the DfE calculates that borrowers will repay 81p, with a graduate earning £28,000 repaying around 17 £ per month.

In addition to changes to student funding, the government will also launch two consultations on Thursday.

The former will seek views on controversial proposals to introduce minimum eligibility requirements for accessing student loans – either requiring students to have a Year 4 English and GCSE maths qualification, or two Es at A – and student number controls to clamp down on what the government describes as low-quality, low-cost tuition.

The second provides a right to a lifetime loan for the equivalent of four years of study after 18 (£37,000 in current fees) to help students study at any stage of their life through tuition modular.

Announcing the reforms, Education Secretary Nadhim Zahawi said: “This package of reforms will ensure that students are offered a range of different pathways, be it further or higher education, which lead opportunities with the best outcomes – and put an end to high interest rates on their student loans once and for all.

Higher and Further Education Minister Michelle Donelan added, “We are delivering a fairer system for students, graduates and taxpayers, as well as sustainability for the student finance system.”

Sir Philip Augar, who chaired the initial post-18 education review, hailed the reforms which he described as fair and sustainable. “The package… forms the basis of a properly connected higher and further education sector. This connection is long overdue,” he said.

But Larissa Kennedy, president of the National Union of Students UK, said: ‘The minister is burdening young people with an unimaginable debt for the next 40 years of their lives. It is nothing more than an attack on opportunity.

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