New Student Loan Changes Will See Graduates Paying Back For Ten Years Longer

The sweeping reforms are set to save the Treasury tens of billions of pounds as the number of students expected to repay their loan is estimated to double under the new changes.

As it currently stands, under a quarter of graduates (23%) earn enough to repay their university loans. But under the new system, over half (52%) are predicted to repay it, with the new so-called 'lifelong graduate tax' essentially seeing graduates continuing to pay off their student loans as they approach retirement age.

In an attempt to soften the blow, interest rates will be cut for new borrowers, being set at no more than the rate of inflation from next year. However experts have warned that this will disproportionately benefit higher earning graduates.

The plans form part of the government's long-awaited review of the Augar report which provided detailed analysis of the post-18 education sector and the funding issues faced by stakeholders.

Martin Lewis, founder of MoneySavingExpert.com, has warned that the new measures will drastically increase the cost of education for those attending university, stating: "The plans will see most university leavers pay far more for their degrees over their lifetime than they do now. It effectively completes the transformation of student 'loans', for most, into a working-life-long graduate tax."

He added: "The decision to extend repayments to 40 years, combined with the other measures, will leave most who start university straight after school still repaying it into their 60s.

"Since 1991, the cost of further and higher education has been effectively split between the individual and the state. Now the pendulum will again swing sharply towards the individual, who will pay substantially more for their education. The Government's own data shows the state's contribution to student loans will drop from 44p in the pound to 19p under the new system."

But this isn't the only setback for students. The government also announced it would be cutting the student loan repayment threshold from £27,295 to £25,000 for new borrowers starting courses from September 2023.

This means that graduates will be made to repay their student loans once they begin to earn £25,000 or more, as opposed to the current salary threshold of £27,295, meaning they are essentially required to start paying their debt off sooner.

In addition to this, the government is proposing to introduce minimum eligibility requirements to access student loans – either requiring students to have a grade 4 pass in GCSE English and maths or two Es at A-level.

Labour’s shadow education secretary, Bridget Phillipson, has accused the government of introducing another stealth tax for new graduates, hitting those on low incomes the hardest.

The government has stated that the new measures aim to curb the soaring cost of student loans, with the value of outstanding loans standing at £161 billion at the end of last March.