New Student Finance System

Significant changes to the student loan system in England that will increase the cost of education, have been announced. The Government expects 52% of students to be able to clear their loans in full, under the new rules. Data shows that currently, only  23% of graduates return their loans. The measures will affect those starting university after the 1st of August 2023.

One of the main changes is lowering the repayment threshold to £25,000 a year. At the same time the length of the period over which graduates repay their loans increases by 10 years and instead of 30 years, will be now 40.

The reforms, also see the student loan interest rate cut to the Retail Prices Index (RPI) rate of inflation for students starting courses from 2023/24, while tuition fees will be frozen at £9,250 for another two years.


Summary of the changes

1. A transformation of the loan into a working-life-long graduate tax 

The decision to extend repayments to 40 years, combined with the other measures, will leave most who start university straight after school still repaying it into their 60s.

2. Lower State contribution

So far the cost of further and higher education has been effectively split between the student and the state. With the new changes, the state's contribution to student loans will drop from 44p in the pound to 19p.

3. Repayment period of 40 years

Currently, students have a 30-year contract with the SLC. From the 1st of August, 10 extra years will be added to the current repayment period. Analysts say this will increase the costs for mid-earners by £1,000s.

4. The annual repayment threshold drops from £27,295 to £25,000

Students will still repay 9% of everything earned above the threshold. However, they will start the repayment sooner and they will repay more. Under the current scheme, on 30 000 income students pay £243 per year – reducing disposable incomes. With the same income, those, enrolled in a uni after the 1st of August 2023 will pay almost double -  £450 per year.

5. Interest rates being cut to RPI inflation

The threshold of 25 000 will be frozen until 2026/27, which means inflation will further erode the threshold in real terms. There is 'no interest in real terms' as the rate is set at inflation. The Government is sticking with the higher RPI measure of inflation, not the official. According to the Government, with this change, when combined with the new 40-year repayment period, students are more likely to clear their loans in full, rising from an estimated 23% under the current system to 52%, under the new one.

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