Student loan changes hit lower earners harder than first thought – IFS
Changes to student loans in England announced by the government last week will hit lower-earning graduates even harder than first feared, costing them an extra £28,000, according to updated analysis by the Institute for Fiscal Studies.
The IFS had previously calculated that lower- and middle-earning graduates would end up paying an additional £15,000-£19,000 towards their loan over their lifetime as a result of the changes, while the highest earners stood to benefit.
A “crucial tweak” in supporting documents from the Department for Education prompted the IFS to revise its forecasts, as it spotted that the threshold for loan repayments would in future be tied to inflation rather than average earnings, increasing graduate repayments by lower earners significantly.
The tweak will also apply to borrowers in the current system who began university between 2012 and 2022, according to the IFS, which described it as “a massive retrospective change in repayment conditions” that would hit lower- and middle-earning graduates hardest.
Under the changes unveiled last week, for students starting university next year the repayment term for loans will be extended from 30 to 40 years after graduation. In addition, the income threshold at which loan repayments begin will be lowered from more than £27,000 to £25,000.
The repayment threshold will be frozen at £25,000 until 2026-27 and then indexed to the inflation rate rather than average earnings, according to the IFS.
Based on Office for Budget Responsibility forecasts, and because of changes to the way RPI is calculated, it means that from 2030 the repayment threshold will rise by about 1.7 percentage points less each year than it would otherwise have done.
The IFS said the taxpayer would gain
Read more on theguardian.com
