Graduates to start repaying student loans “once their salary reaches £ 22,000”

Student loans will need to be repaid faster, as part of the government’s new plans to generate an additional £ 2.5bn per year.

Currently, student loans only need to be repaid if graduates earn £ 27,295 per year.

But, under new plans, the salary threshold could drop to £ 22,000 and force average incomes to pay an additional £ 475 to the Treasury per year.

Number 10, the Treasury and the Department of Education would agree to lower the threshold to £ 22,000 or £ 25,000.

Lowering it to £ 25,000 would save the Treasury around £ 1.1bn for each new year of students, while £ 22,000 would save £ 2.5bn.

Student loans will need to be repaid faster, as part of the government’s new plans to earn an additional £ 2.5bn per year (stock image)

More details on this reform will be announced in a few weeks and the Treasury is expected to argue that the current system is unfair because all taxpayers fund loans – billions of which are never repaid.

A Whitehall insider, who has championed the change, told The Telegraph: “It’s a fairness argument. Normal workers, many of whom don’t go to college and get student loans, pay for it. ‘

However, the new regime will provoke a political backlash, as graduates will now pay more in taxes than a retiree earning double their salary.

A graduate earning £ 30,000 will be taxed at 21.5% of their salary, while a retiree earning £ 60,000 will only part with 20.1%.

The majority of graduates are expected to pay between £ 200 and £ 475 more per year, according to the Higher Education Policy Institute (HEPI).

HEPI Director Nick Hillman welcomed the potential reform, saying: “Lowering the student loan repayment threshold is a reasonable idea and much better than alternatives like cutting student spaces as the number of young people leaving school is increasing. “

Graduates in England who start paying off student loans in 2021 owe an average of £ 45,000, much more than ever

Graduates in England who start paying off student loans in 2021 owe an average of £ 45,000, much more than ever

Under the new plans, the salary threshold could drop to £ 22,000 and force middle-income people to pay an additional £ 475 to the Treasury per year (stock image)

Under the new plans, the salary threshold could drop to £ 22,000 and force middle-income people to pay an additional £ 475 to the Treasury per year (stock image)

Dr Gavan Conlon, partner at consultancy London Economics, said: “Lowering the payout threshold could potentially save billions, but it is the 80% of middle and low-income graduates who would end up paying more.

“The highest paid graduates, mostly men, would not be affected by reductions in the repayment threshold. The same is true for the extension of the repayment period.

“Policies like lowering fees and removing real interest rates sound attractive and are easily understood, but all the benefits are concentrated among the highest paying graduates.

“The typical graduate is not affected. “

A spokesperson for the Ministry of Education said he remained “committed to improving standards and pedagogical excellence” in higher education and “will present more details on higher education regulations in the weeks to come. future “.

It comes as Rishi Sunak has tightened his grip on Britain’s tight middle with a budget that will put the brunt of tax hikes on public spending madness.

The Institute for Fiscal Studies said average incomes would lose an average of £ 180 per year, while inflation and a freeze on personal tax breaks meant that one in nine workers was now a higher rate taxpayer. The rate was one in 30 in 1991.

And the Resolution Foundation has warned that middle-income households – typically defined as those earning around £ 30,000 a year – would take a hard hit paying for many investment decisions in the wake of the Covid pandemic.

By 2026-2027, tax as a share of the economy will be at its highest level since 1950 (36.2%), which equates to an increase per household since Boris Johnson became Prime Minister of 'around £ 3,000.

By 2026-2027, tax as a share of the economy will be at its highest level since 1950 (36.2%), which equates to an increase per household since Boris Johnson became Prime Minister of ‘around £ 3,000.

He revealed that families will pay an additional £ 3,000 in taxes during Boris Johnson’s tenure as Prime Minister at a time of weak growth and stagnant wage growth – a figure disputed by Downing Street.

Increases in national insurance and income tax will begin next April, while corporate tax will drop from 19% to 25% the following year.

By 2026-2027, the share of tax in the economy will be at its highest level since 1950 (36.2%), an increase per household since Boris Johnson became Prime Minister of around 3,000 £.

About Judith J. George

Check Also

Can you refinance student loans?

Federal and private student loans can be refinanced, as long as you meet the credit …