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Controversy on changes to student loan repayment

  • 19/01/2016
  • Author:MartinKitara

The Prime Minister has been criticised for the government’s turnaround on pledge that the income threshold at which loans must be paid back would rise in line with earnings

Student

Last November the Chancellor announced that the earnings threshold of £21,000 at which graduates must begin to pay back their loans would be frozen for five years. This means that students who have paid the higher course fees of £9,000 a year, which were introduced in September 2012, will face higher repayments, as the income threshold will not match increases in average earnings. The controversial change means that on average a former student will pay £306 a year more in 2020-21 compared with 2016-17.

The government had previously stated that income threshold would increase annually from April 2017.

Concerns raised with Prime Minister

Last week Martin Lewis, founder of the MoneySavingExpert website wrote to the Prime Minister David Cameron raising concern about the legality of the government retrospectively changing the terms of student loans.

In the letter, Lewis wrote: “The decision to backtrack on this is hugely damaging. It means many lower and middle-earning graduates will repay thousands more over the life of their loans.

“However, even more important than the additional cost is the message this sends. The regulator would not allow any commercial lender to make a change to its terms this way. It is therefore surely wrong for any government to do so – retrospective changes have always been bad governance.”

Lewis, who is a former head of the Independent Taskforce on Student Finance Information, a government-backed organisation, made the announcement that he had hired a legal team to seek judicial review on his blog.

In an article for the Huffington Post UK, Lewis wrote: "And more so, as head of the taskforce, I told people that in 2017 the £21,000 repayment threshold was set to rise. I refuse to be – with hindsight – the Government’s mule for mis-selling student loans.

"Present and future generations must be able to trust the Government to keep its word on student finance."

Government response

A spokesman for the Department for Business, Innovation and Skills told the Guardian newspaper that the decision to initiate the freeze was based on the fact that graduate earnings had not risen as expected.

"When the £21,000 threshold was set in 2010, assumptions had to be made about earnings growth between 2010 and 2016.

“While the economic recovery is underway, it is not yet fully reflected in earnings, so the threshold is higher in real terms than originally intended.

“Making this change helps contribute to the current government’s debt reduction targets.”

Turn2us help

If you are in higher or further education, the Studying (aged 16+) section of our website has information on what help may be available to you through benefits, grants or other financial support.

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