Student loan reforms will perpetuate inequality, IFS report says

A report by the Institute for Fiscal Studies (a think-tank) has suggested that the new government reforms to the student loan system will cost graduates on lower-to-middle earnings an additional £30,000 from their lifetime earnings.

The changes to the current loan system were announced in February and will come into force from September 2023. The reforms include:

The reduction of the repayment threshold from £27,295 to £25,000.
Graduates needing to repay their loans for up to 40 years, rather than 30 years.
The interest rate being cut to match the Retail Price Index, rather than RPI plus a percentage of up to 3% as it is at the moment.

The changes aim to reduce the amount paid out in student loans that are not repaid. Currently, around 20% of graduates repay their loans in full and it is hoped that under the new system, this will rise to 70%.

The minister for further and higher education, Michelle Donelan, claimed that the reforms were ‘’about bringing fairness into the system’’, and preventing outstanding student debt being ‘’paid by the taxpayer.’’

However, the reforms have been criticised for compounding inequality between lower and higher graduate earners.

Analysis by the IFS has highlighted how the new reforms will hit lower earning graduates and benefit those on higher incomes.

Ben Waltmann, author of the IFS report, said that ‘’Student loans reform will reduce the cost of loans for the taxpayer and the highest earners, whereas borrowers with lower earnings will pay a lot more. The system has been made less progressive by this.’’

IFS analysis showed that those earning around £50,000 by the age of 30 (the highest earners) will now pay less than under the current system, due to the reduction in interest. Middle-earning graduates will pay back £20,000 more than they do now while those classed as lower-earners (making around £30,000 by the age of 30) will pay back £30,000 more due to the lower repayment threshold and longer period of time for repayment.

The president of the National Union of Students called the changes ‘’calculated cruelness’’ during a time when the cost of living was rocketing.

“Ministers are saddling young people with unimaginable debt for the next 40 years of their lives. This is nothing more than an attack on opportunity,” she said.


Written by Deandra Peiris

13 views0 comments

Top Stories