The earnings threshold for student loan repayments could be lowered to save the government money, following recommendations from the Augar review of post-18 education and funding. However, the Institute for Fiscal Studies (IFS) says that this move will favour wealthier graduates, whilst negatively affecting those on lower incomes.
Chancellor Rishi Sunak is looking to overhaul student financing and lowering the income threshold for loan repayments is set to be part of this, with one minister stating, “that’s the plan”. Currently the salary at which graduates begin loan repayment is £27,295, but the 2019 Augar review recommended a decrease to £23,000, and this year the Higher Education Policy Institute recommended a decrease to as low as £20,000. A decision on the new income threshold has not been announced but one minister has labelled £20,000 as “a bit low”.
The Augar review has also recommended cutting tuition fees from £9,250 to £7,500, but ministers may be unlikely to follow this recommendation as they have claimed their focus is on reducing the impact of university funding on taxpayers. However, the proposed lowering of income thresholds would see lower earning graduates facing an effective 50% tax on their additional earnings, which may hit hard in light of increased national insurance payments, set to take effect in April 2022.
Ben Waltmann, a senior research economist at IFS has commented on the inequality of the proposed overhaul, saying, “The system is expensive but there is essentially no way to raise more money from it without hitting borrowers with average earnings more than the highest-earning ones. If [Sunak] wants to raise more from the highest earners, the chancellor will need to use the tax system.”
Currently around 80% of students never repay their loans in full, and each year group of undergraduates costs the government approximately £10bn. To tackle this issue, researchers at IFS have built a calculator that can demonstrate the costs and options available to the Treasury regarding this issue. The calculations show that any significant changes to the student loan system will leave average earners paying out a larger portion of their income whilst richer graduates will be less affected.
Senior economist at the Institute for Public Policy Research, Henry Parkes, has branded the proposed overhaul as “virtually indistinguishable from a tax rise targeted at young workers alone”, with vice-president for higher education at NUS, Hillary Gyebi-Ababio, concurring that “the injustice is simply astounding”.
0 Comments