Graduates to be hit with ‘tax rise by stealth’ on their student loans
Millions of university graduates in England face higher repayments on their student loans as the government freezes the earnings threshold at which they start repaying.
The universities minister, Michelle Donelan, announced on Friday 28th January that the salary threshold for undergraduate student loan repayments is to be frozen at £27,295 per year. If the current rate of inflation had been applied, the threshold to start repaying loans would have risen 4.6 per cent, to above £28,000.
“Few will welcome this announcement but it is sensible because the current system has become out of kilter.”
The freeze will come into effect in April and means that a graduate earning £30,000 will now pay an additional £113, according to the Institute for Fiscal Studies (IFS). The move is set to save the government around £600 million over the next year, but will also place a much higher financial burden on graduates. It will apply to all income-contingent loans taken out by English and EU students who had studied at UK universities since 2012. The threshold for repayment of postgraduate loans has been frozen at £21,000.
“It will be a be a further hit to the real incomes of these graduates on top of the rising cost of living.”
The IFS’s senior research economist, Ben Waltmann, said the move “effectively constitutes a tax rise by stealth” and it “will be a 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.”
Nick Hillman, Director at the think tank, the Higher Education Policy Institute, said: “Few students or recent graduates will welcome this announcement but it is sensible because the current system has become out of kilter, with taxpayers paying much more than originally planned.”
Martin Lewis, a consumer finance expert said: “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.”