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The government is considering lowering the income threshold at which graduates start repaying student loans in a bid to save treasury money and push more young people into cheaper vocational training.
Chancellor Rishi Sunak wants to revisit student funding in his spending review ahead of next month’s budget, reflecting Treasury concerns that the taxpayer is bearing too much of a burden to fund college tuition.
Currently, graduates start paying off student loans when their salary reaches Â£ 27,295, but ministers are looking to reduce that figure. “This is the plan,” said a minister.
The Augar review of post-18 education in 2019 recommended that the threshold be lowered to Â£ 23,000, the median incomes of non-graduates at the time, and the Higher Education Policy Institute think tank modeled this. year a reduction to less than Â£ 20,000.
No final decision on the new level has been taken, but a minister said a threshold of Â£ 20,000 was considered “a bit low”.
A figure of Â£ 23,000 could save the Treasury just under Â£ 2 billion a year, according to the Institute for Fiscal Studies, a think tank, while a graduate reaching the current threshold would see their take-home pay cut over Â£ 800 per year. .
The Education Ministry said the student loan system was “designed to ensure that all with the talent and desire to pursue higher education can do so, while ensuring that the cost of higher education is met. equitably distributed between graduates and the taxpayer “.
He also said he continued to review “the recommendations made by the Augar panel carefully.” Augar also recommended reducing the annual tuition fee cap from Â£ 9,250 to Â£ 7,500 – such a reduction would be welcomed by students.
Whitehall officials said the proposal to lower the salary threshold for loan repayments would boost government plans to revolutionize skills and vocational training in the UK, a key part of the upgrading program. Boris Johnson level.
The government estimates that too many students are taking on debt by studying âsoftâ three-year university courses in arts and social sciences, and is seeking to orient more 18-year-olds towards cheaper technical training which will pay an economic dividend faster.
Gillian Keegan, the former skills minister, said ahead of this month’s cabinet reshuffle that the skills focus was aimed at reassessing the university as the “default option” for education after 18 years. âWe want people to think about their options – it’s an important investment decision,â she said.
But reducing the salary threshold would mean that millions of new and existing graduates would be hit with an effective 50% levy on additional income in some of the lower salary brackets, increasing the pressure on young people after the increase in salaries. national insurance contributions this month.
Henry Parkes, senior economist at the Institute for Public Policy Research, said lowering the threshold would be “virtually indistinguishable from a tax increase targeting only young workers.”
The National Student Union said it would be “totally opposed” to any reduction. âThe injustice is simply astounding,â said Hillary Gyebi-Ababio, vice president of higher education.
In England, the average debt at graduation is over Â£ 45,000 in government maintenance and tuition loans, which are repaid with additional interest through a 9% reduction in income and amortized after 30 years.
The government believes 54 percent of the money he lends will never be repaid, and he is keen to reduce this so-called RAB (accounting and resource budgeting) charge, which determines the proportion of the State’s loan portfolio to be amortized.
David Willetts, who as universities minister in the 2010-2015 coalition government introduced a tuition fee of Â£ 9,000 from 2012, is among those supporting the idea. “I think the RAB fee is too high and I think they should lower the threshold so that graduates pay more back.”
But forcing graduates to start repaying earlier, which would more than reverse Theresa May’s 2018 decision to raise the threshold, has become a favored measure, potentially alongside others.
HEPI Director Nick Hillman said the option was better than the alternatives, providing “very significant” savings “without seriously harming field services.”
Ben Waltmann, an economist with IFS, said the government could also raise funds by increasing the payback period, allowing graduates to pay later in life.