Millions of Brits to pay £28,000 more after Tory student loan shake-up

Poorer graduates face paying £28,000 more over their lifetimes under a major Tory shake-up of student loans.

The Institute for Fiscal Studies (IFS) warned that Brits on below average incomes would lose out on a higher chunk of their earnings due to changes to student finance rules.

Students starting university next year will begin paying off their loans when they earn more than £25,000 - down from the existing £27,295-a-year threshold.

And the length of time to repay their debt will be extended to 40 years, up from 30. This means some people will still be making repayments into their 60s.

The IFS previously estimated that poorer graduates would pay £19,000 more towards their student loan across their lifetime.

But it now believes those on lower middle incomes will pay back £28,000 more after revising its estimates in line with inflation rather than average earnings.

University students could be paying off their student loans until they are in their 60s under the Government's plans (scu)

In a briefing note, senior research economist Ben Waltmann wrote: "Those with below average but not the lowest earnings (3 ^rd and 4 ^th decile of borrowers’ earnings) stand to lose the most at around £28,000, as they will in many cases still not pay off their student loans under the new system, but will make repayments for ten years longer and on a larger chunk of their earnings than under the current system."

Lowering the salary threshold to £25,000 from September 2023 would benefit high-earning graduates, while increasing the cost for lower earners, the analysis shows.

But it would save the taxpayer around £2.3 billion per cohort of university entrants, as higher repayments by low or middle earners will be partly offset by lower repayments of higher earners.

Mr Waltmann said: "Advantages of the new system need to be weighed against its strong negative impact on lower-earning graduates.

"As a result of the cut in the repayment threshold, they will pay more in the years after graduation, and the extension of the time period for repayment to 40 years means that they will be paying back for longer."

Education Minister Michelle Donelan said the plans would be fairer to students and the taxpayer (Western Daily Press)

But he said frequent changes to the system over the past 10 years suggest the plan will likely have changed by the 2060s when this cohort is expected to still be paying off their loans.

Announcing the plans last month, Education Minister Michelle Donelan said it would create "a fairer system for students, graduates and taxpayers as well as future-proofing the student finance system".

The reforms would mean that more than half (52%) of students who take out a loan would repay this in full, compared to 25% currently estimated.

Tuition fees will be capped at £9,250 for a further two years, while student loan interest rates will be set no higher than the rate of inflation from 2023/24.

But the Government quietly rejected the report's key call to slash tuition fees to £7,500-a-year.