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Outcry over proposal for lower student loan repayment threshold

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Students, unions and finance experts have warned against forcing graduates to start repaying their loans earlier, saying it would hit lower earners hardest and pile pressure on the Covid generation.

Ministers are understood to be considering cutting the threshold at which graduates begin to repay their tuition and maintenance loans from just over £27,000 to £23,000.

But the proposal, part of an overhaul of student financing designed to save the Treasury billions, led to an outcry.

The National Union of Students called it “simply astounding” and a leading Conservative warned against putting the “cart before the horse” by asking students to pay more before addressing the disruption wreaked by the pandemic.

The mooted change to the threshold for repayments, first reported by the Financial Times, would mean graduates paying an additional £400 year.

It is among measures recommended by the Augar review of higher education in 2019, which also suggested cutting tuition fees from £9,250 to £7,500 and extending the repayment period from 30 to 40 years.

Robert Halfon, the Conservative MP for Harlow and chair of the Commons education committee, said if the government intended to lower the threshold it should also look at cutting interest rates on student loans.

“In the short term if they are going to do this they need to lower interest rates that students have to pay. The interest rates are the things that are the real killer,” he said.

After students’ experiences during Covid, when learning moved online and many were confined to their bedrooms, Halfon said there needed to be a new student guarantee to ensure they get the quality of education they are entitled to expect before making threshold changes to extend loan repayments.

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“I worry that the cart is being put before the horse,” he told the Guardian. “There needs to be a proper contract between students and universities. We should also be trying to wean students off just taking up loans and get them doing degree apprenticeships where they earn as they learn and get a proper skilled job at the end.”

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Another leading Conservative, the former universities minister Chris Skidmore, was supportive of lowering the threshold for repayments but echoed concern about interest rates.

“Even though it is often irrelevant when it comes to long term repayments, I find it morally unacceptable that the interest rate charged on loans is up to 6% when we have interest rates at 0.1%,” he said.

Martin Lewis, the consumer finance champion, warned the change would “hugely” increase what graduates – especially lower earners – pay. It would end up benefiting the highest earners who pay off their loans quickly and end up repaying less in total, he said.

The founder of also warned ministers against any attempt to retrospectively impose changes on those with existing loans. “If the government decides to do this, it should only be done overtly and up front … so prospective students and their parents can look at the real cost for them of going to university and decide if it’s worth it.”

Hillary Gyebi-Ababio, the NUS vice-president for higher education, said: “We would be totally opposed to any plans on reducing the salary repayment threshold for student loans.

“Like the government’s decision to increase national insurance contributions, this burden targets people earning lower incomes. After 18 months of such hardship, and with the looming hike in energy prices set to hit millions of the most vulnerable this winter, the injustice is simply astounding.”

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Jo Grady, the general secretary of the University and College Union, also opposed the move. “Loading more debt on to students is not the way to deal with the failed marketisation of higher education. It is a regressive move that will hit lower earners hardest, as they will see the largest relative increases to their payments.”

The chancellor, Rishi Sunak, is understood to be keen to overhaul student financing in his spending review before next month’s budget, and is considering his options.

A Department for Education spokesperson said the student loan system was designed to ensure all those with the talent and desire to attend higher education were able to do so, while ensuring the cost was fairly distributed between graduates and the taxpayer.

“We continue to consider the recommendations made by the Augar panel carefully alongside driving up quality of standards and educational excellence and ensuring a sustainable and flexible student finance system,” the spokesperson said.