Could we be seeing changes to student loans?

A review of post-18 education in England has put student financing under the spotlight yet again - and could be the subject of another bout of reform.

The review was partly in response to growing criticism of the level of university tuition fees. But it also comes as new National Statistics methods mean that student ﬁnancing will soon account for a substantially larger proportion of the national debt.

Fees vary throughout the four constituent parts of the UK, with England having the highest overall. English students will pay up to £9,250 wherever they study in the UK, unless they go to Wales, in which case the maximum is £9,000. Scottish students studying in Scotland remain free of tuition fees, while those from Northern Ireland who stay home only pay £4,160.

Changes to student loans

The review, chaired by Dr Philip Augar, suggested several major reforms. While these focused on the system in England, they could well prompt a response from other parts of the UK as well.

The cap on university tuition fees should be reduced to £7,500 a year by 2021/22, frozen for 2022/23 and then should be inﬂation-linked from 2023/24.
For new students from 2021/22, the annual income threshold at which loans start to be repaid should be cut from £25,000 to £23,000 (in 2018/19 values). The loan repayment rate should remain at 9% of income above the threshold.
The maximum repayment term for new students should be extended from 30 to 40 years.
A cap should be put on lifetime repayments at 120% of the initial loan amount, adjusted for inflation.
Means-tested maintenance grants should be reintroduced, and the eligibility thresholds revalued in line with inflation.

The effect on repayments

A surprising consequence of the proposals is that the total repaid by the highest-earning graduates would be less than under the current rules. But those on ‘middle of the range’ graduate earnings could end up paying a lot more as a result of the ten-year extension of the repayment term.

These proposals would change important aspects of student financing, but most graduates would still start their working lives with a substantial amount of inflation-linked debt. Some will end their working lives 40 years’ later in a similar situation.

Planning for your children or grandchildren's university fees

If you have children or grandchildren heading for university in the coming years, you should factor their education costs into your planning. Speak to a member of our tax team for more information.