Student loan repayment to increase as UK government announces changes

The salary threshold for paying back student loans is set to be lowered to £25,000, with the write-off period increasing to 40 years, according to the Department of Education.

Students that start university from next year will be affected, with the present standards of a £27,250 threshold and a 30 year loan repayment period remaining in place for current students.

At the moment, graduates who earn over the repayment threshold must contribute 9 per cent of their salary to repaying their student loan for 30 years after their education, or until their debt is fully paid off.

Following new regulations, graduates will have to start paying this debt on lower earnings and for a longer period, in a move to create “a fair deal for the taxpayer and students”, according to Higher and Further Education Minister Michelle Donelan.

As consolation, interest rates on 2023 loans will be cut to the rate of inflation (RPI), as opposed to the current 3 per cent above-inflation level, so that graduates do not pay back more than their initial borrowed amount.

“More than three-quarters of students who started a full-time undergraduate degree in 2020/21 are currently not forecast to fully repay their loan,” said Donelan in a statement on Thursday.

“Despite most taxpayers having never attended university, they are paying nearly half of every pound issued as a student loan,” she continued. “We ask them to foot the bill precisely at the moment that graduates are most likely to be able to contribute.”

This adjustment was announced in response to the Augar Review, a 2019 report on the higher education system which recommended a number of improvements.

Other suggestions from the Augar report include cutting university fees to £7,500 per year and reintroducing maintenance grants.

This news comes just a month after the government announced a “tax rise by stealth” on student loans by freezing this year’s repayment threshold, applicable to those studying at UK universities since 2012.