Students to pay off loans into their 60s, plans say

Students who start university next year could be paying off their loans for 40 years after graduating, under new government plans for England.

Under the current system, loans are written off after 30 years.

The government says extending the repayment period, as part of a student finance shake-up, will reduce the bill for taxpayers.

But Labour says it will "hit those on low incomes hardest", with lower-earning graduates affected more.

The plans - part of a response to the 2019 Augar review of post-18 education - apply to students in England starting courses from September 2023.

The government has also said:

The government is proposing these changes because more students than ever are going to university, and only 25% of those who started full-time undergraduate degrees in 2020 are expected to pay back their loans in full.

And at the end of March 2021, £161bn was yet to be paid back in student loans - a figure forecast to rise to £500bn by 2043.

By requiring graduates to start paying back at £25,000, and to continue paying for an extra 10 years, the government hopes more will repay their loans in full.

The proposal to slash interest rates follows a 2019 Conservative manifesto pledge to reduce "the burden of debt on students".

Cherie Bosama, 23, is already at Manchester Metropolitan University, so will not be affected by the changes to student finances - but she says the idea of paying off her loan for longer is a "depressing thought".

"I feel like people do want to pay off their student loans as soon as possible... and not have student loans just lingering over their heads when they've got kids or a mortgage or things like that," she says.

"Everyone sits the exact same maths GCSE paper but some of the students in that exam hall will have had a private tutor who has sat with them and done every single past paper before and they then pass the exam," she says.

"You're sat in the exact same exam hall with them and you haven't had that tutoring, you haven't had the access to the additional resources and you could fail that exam.

"Unfortunately, the door is immediately shut to academia... that's terrifying."

Under the current system, students' interest is RPI plus up to 3% while they are at university and varies depending on income from the April after they graduate.

The government says its plans would mean a student enrolling on a three-year course at the end of next year could see their debt reduced by up to £11,500 - if and when they earn £25,000.

Education Secretary Nadhim Zahawi said £900m of investment was being "reinforced by a revised, fairer, and more sustainable student-finance system, which will keep higher education accessible and accountable".

"These changes will create a fairer system for both students and the taxpayer," he added.

Start paying earlier, pay longer, pay more: that's what these plans will mean for many.

Hardest hit will be middle earners paying longer - while the most highly-paid graduates are the biggest winners.

These high earners already pay off their loans in full, but currently pay interest of up to 3% plus the Retail Price Index (RPI) after university. That will fall to just RPI, for all students and graduates.

So while this will reduce the bill to taxpayers from unpaid loans, it carries political risk for a government promising to level up.

In turn that creates a potential space for Labour to reframe its policies around tuition fees and maintenance grants, to appeal to future students.

The amount repaid every month is tied to income.

Higher-earning graduates will repay more each month - and clear their debt faster.

But middle-earning graduates will be paying off their loan for most of their working lives - even after their own children have started university.

Labour's shadow education secretary Bridget Phillipson called it a "stealth tax for new graduates starting out on their working lives, which will hit those on low incomes hardest".

"Instead of fixing the broken system, these changes simply store up problems for the future," she said.

"Ministers are kicking the can down the road while seeking to limit young people's aspirations to study at university."

Ms Phillipson added: "Instead of focusing on supporting more students to succeed at school or widening access to university, the government is slamming the door on opportunity."

Sir Philip Augar, who chaired the 2019 review, said the plans were "consistent with the spirit of the report" and form "the basis of a properly connected further and higher education sector".

"That connection is long overdue," he added.

But Association of School and College Leaders general secretary Geoff Barton pointed out the government's plans "stop some way short" of the recommendations in the Augar review, which included reducing tuition fees to £7,500 per year and reintroducing maintenance grants.

"This latter omission is particularly disappointing in terms of improving social mobility and access to university," Mr Barton said.

He welcomed the steps to reduce interest rates - but added the plans would come "with a sting" because of the lengthier payment window.