Student loan repayment: Sunak told dropping threshold to £19,000 will 'save £4billion!'

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Ministers are reportedly considering cutting the threshold at which graduates begin to repay their tuition and maintenance loans from just over £27,000 to a lower figure in order to raise more funds. It has been claimed that the threshold could drop down to £23,000 in an overhaul of the student loan system. However, the plan has been met with anger from students, graduates and organisations supporting them, as it would mean lower earning graduates are forced to fork out more in the aftermath of a pandemic. The National Union of Students called it “simply astounding”, and Conservative MP for Harlow, Robert Halfon, said interest rates on student debt would have to be lowered if the repayment threshold is brought down.

He added: “I worry that the cart is being put before the horse. There needs to be a proper contract between students and universities.

“We should also be trying to wean students off just taking up loans and get them doing degree apprenticeships where they earn as they learn and get a proper skilled job at the end.”

The architect of the current system of student finance suggested in June that the student loan repayment threshold dropping to as low as £19,000 would not be popular, but would have some positives.

Nick Hillman’s research was aided by modelling done for the Higher Education Policy Institute.

He wrote in the report: “Cutting places at a time of rising demand is particularly unwise, as is giving institutions less for teaching when their finances are already so squeezed.

“Our modelling shows some of the changes to loans that might be made instead.

“For example, it is possible to reduce the write-off costs by reducing the repayment threshold or extending the repayment period.

“Such tweaks might not be popular but they could deliver savings if politicians are determined to find them.

“Reducing the repayment threshold to under £20,000 raises so much it might even enable new initiatives, such as the return of maintenance grants, alongside saving money.”

The Higher Education Policy Institute’s modelling, carried out by London Economics, found that the current system remaining in place would cost the Government £9billion in written off loans for tuition and maintenance.

Cutting the threshold to £19,300 – the same as it was before 2012 – would mean the write-off would shrink from £9billion to just over £5billion, saving the Government around £4billion.

Average repayment rates would rise by £10,000.

Jo Grady, the general secretary of the University and College Union, opposed plans to drop the threshold, highlighting that graduates already lose a lot of their income in later life.

READ MORE: Inheritance tax: Expert’s tip for ‘£18,000′ tax break

As a result of the policy, those with student debts will pay out nearly half of extra income in income tax, national insurance and student loan repayments.

From next April, people who have student debt and earn above the threshold to repay them face a 49.8 percent tax on any increase in pay from employers, as reported by Yahoo Finance.

Young graduates earning between £50,270 and £100,000 face a marginal tax rate of 52.25 percent.

In comparison, a non-graduate earning up to £50,270 will pay just 33.25 percent, while those earning up to £100,000 will pay 42.25 percent.



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