The Westminster government has been accused of imposing ‘a stealth tax hike’ on graduates after freezing the threshold for student loan repayment in England.
The income threshold at which graduates start repaying their loans is currently £27,295 a year and generally increases with inflation each year. It was expected to top £28,000 this year but, in a statement to parliamentHigher Education Minister Michelle Donelan said it would instead be maintained.
The Institute for Fiscal Studies (IFS) said the ruling meant a graduate earning £30,000 would pay an additional £113 on their debt in the coming tax year.
Ministers are said to have been keen to reduce the loan repayment threshold – possibly to £22,000 – in a bid to reduce the cost of the student finance system to the Treasury. Under the current system, 44% of the value of student loans taken out by freshmen this fall will ultimately be paid by taxpayers, because under current terms, outstanding balances are amortized after 30 years, and four borrowers out of five never repay their debt in full.
However, with the government yet to release its long-awaited response to the Augar review of higher education funding, freezing the threshold is the solution for now, at least.
Ben Waltmann, senior research economist at IFS, said the decision “actually constitutes a stealth tax hike on middle-income graduates”.
“Graduates with the lowest incomes do not meet the threshold for repaying student loans, so they will not be affected by the freeze. Those with the highest incomes will repay their loans anyway, so the freeze just means they will repay their loans faster,” he said.
“For a graduate earning £30,000, this announcement…will be a further blow to the real earnings of those graduates on top of the rising cost of living, freezing of personal allowance and higher National Insurance rates .”
Mr Waltmann acknowledged that “what really matters” is how long the gel stayed in place.
“If only for one year the impact on graduates will be moderate and the government can only expect to save around £600m per cohort of university students,” he said. “If it stays in place longer, it could transform the student loan system, with a much lower cost to the taxpayer and a much greater burden on graduates than they thought they had enrolled in when they enrolled. took out their loans.”
In her statement, Ms Donelan said it was “now more crucial than ever that higher education is supported by fair and sustainable funding and funding arrangements”.
“Keeping the repayment threshold at its current level, alongside the ongoing fee freeze, will help ensure the sustainability of the student loan system, while keeping higher education open to all who have the ability and ambition. to benefit from it,” she added. noted.
Ms Donelan, who said the response to Augar’s review would be published “shortly”, also confirmed that the threshold for repayment of postgraduate student loans would also be frozen, at £21,000 a year.