Government to cut threshold for graduate repayment of student loans, report says

Labour MP says move would unfairly hit ‘women and those on lowest incomes’

Ministers are reportedly planning to lower the salary level at which graduates start to repay their student loan, in a move that has already sparked opposition MPs to accuse the Tories of “widening the gap” further for low-earning workers.

Chancellor Rishi Sunak reportedly wants to overhaul student financing in his spending review ahead of October’s Budget, according to the Financial Times, over concerns in the Treasury that the taxpayer foots too large a bill for university courses.

Currently graduates begin paying back their loans when they earn £27,295 or more, but one unnamed minister told the paper that “the plan” is to reduce that figure – with estimates appearing to suggest the government wants to go back below the £25,000 mark.

The 2019 Augar review of post-18 education recommended the threshold be lowered to £23,000 while the Higher Education Policy Institute think-tank this year modelled a cut to less than £20,000.

No final decisions are understood to have been made yet, however one minister told the FT a £20,000 threshold was considered “a bit low”.

The news comes at a particularly stretched time for graduates earning the current £27,295 threshold, who, after the recent health and social care levy was introduced, learned they would be paying a marginal tax rate of at least 42.25 per cent when National Insurance (NI) costs go up – 33.25 per cent for non-graduates.

For those earning more than £50,270, the rate is 52.25 per cent which works out at 43.25 per cent for non-graduates earning up to £100,000.

Matt Western, the Labour MP for Warwick and Leamington, tweeted out the development and criticised the Conservative Party for “widening the gap” between the working class and the wealthy.

“Widening the gap: govt plans to drop the student loan repayment threshold to £20k which will impact hardest on women graduates, those on lowest and middle incomes ultimately paying c. £10,000 more,” he said.

“But wealthy students would be virtually unaffected!”

Meanwhile, a maths teacher took aim at the government for its failure to protect workers such as herself from the latest cost of living squeeze.

“Fully aware I’m very privileged compared to many in society,” Bec Greenhalgh, who works in Manchester, said. “BUT increasing NI and lowering the salary threshold for student loan repayment coupled with a teacher pay freeze is not what I had in mind when I accepted my mortgage offer.”

A Department for Education (DfE) spokesperson told The Independent the student loan system was “designed to ensure all those with the talent and desire to attend higher education are able to do so, whilst ensuring that the cost of higher education is fairly distributed between graduates and the taxpayer”.

It also said DfE was continuing to consider “the recommendations made by the Augar panel carefully”.

The National Union of Students said it would be “totally opposed” to any reduction. “The injustice is simply astounding,” Hillary Gyebi-Ababio, vice-president for higher education, told the FT.

Back in 2017, the student loan repayment threshold was significantly lower than it is now – until then-prime minister Theresa May announced changes in October. The ex-Tory leader upped the repayment salary level from £21,000 to £25,000, before it eventually became the £27,295 figure it is now in April of this year under Boris Johnson.

The average student’s debt on graduation day in England is thought to be more than £45,000 in maintenance and tuition loans, which are repaid to the government with additional interest through a 9 per cent cut of earnings and written off after 30 years.

Another disgruntled social media user, Sam, branded ministers “scum” after seeing the news – hours after Labour’s deputy leader Angela Rayner defended calling Mr Johnson’s government the same thing.

“Absolutely grim,” Sam wrote. “Increasing NI and now this. Coupled with spiralling inflation and unaffordable housing. Attacking the younger generations because they’re too scared to tax their donors.”