Student loans: Would the proposed changes help poorer students?

The BBC News reality check team cite Sutton Trust research on student finance.

A government-commissioned review of funding for over-18 education has come out with its recommendations.

There has been much discussion of whether the changes are progressive (better for lower earners) or regressive (better for higher earners).

The key proposals for higher education are:

  • reducing the maximum annual fees that universities can charge – from £9,250 a year to £7,500
  • instead of any unpaid loans being cancelled 30 years after graduation, deductions would continue for 40 years
  • reducing the amount graduates can earn before they have to start repaying – from £25,725 a year to £23,000
  • reintroducing maintenance grants for poorer students.

At first glance, you may think lowering fees would be good for all students – but that is not true because so few of them are expected to pay off their loans in full.

The Office for Budget Responsibility (OBR) estimates that only 38% of the money and interest will be repaid, while the Sutton Trust estimates that 81% of students will not pay off their loans in full.

And if you are a middle earner who would not have paid off your loan in full under the old system, making you pay for an extra 10 years and making you pay more each year is probably going to cost you more than you are going to save from paying lower annual fees.

To its credit, the review has gone into considerable detail of the impact of the changes. It says:

  • The highest earners would still pay the most but would pay less than they do under the current system
  • Middle-earning graduates would make higher contributions each year and more of them would pay off their debt in full
  • Low-earning graduates would still not pay anything if they did not earn above the threshold, although the threshold would be lower

So while the new system would still be progressive overall, it would be less progressive than the old system and it would be reasonable to describe the changes as regressive.

Example students

The review also looked at the impact of the proposed changes on the lifetime repayments of six example students with different earnings.

So if you imagine looking at all the graduates who have borrowed money in order of their annual earnings, the first example is 10% of the way along, the second is 25% of the way along et cetera.

So, the lowest earners are on the left of the chart and the highest are on the right.

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Get the full story, see the research or read the full Sutton Trust response to the Augar review.

2019-05-31T08:41:31+01:00May 30th, 2019|Categories: In the News|

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