Britain government announces reforms to restructure student loans

The British government announced reforms to restructure student debt so that the state saves money as more students pay their loans in full.

United Kingdom student loan

Britain Minister of Higher Education Michelle Donelan announced on February 24 a plan to reform student debt and save money for the state.

The government announced a freeze on tuition fees for another two years. It is the seventh year when tuition fees for students didn’t increase, a saving of about 5,000 pounds for students according to Michelle Donelan. The current tuition fees in British universities are 9,250 pounds.

But the minister also announced a set of measures about student loans that are meant to save the Treasury and the taxpayer billions of pounds.

In the United Kingdom, students may be able to borrow money from the state to help pay for university or college tuition fees and to help with living costs. They then reimburse their debt according to their income.

In April 2021, present and past students in the U.K. still needed to reimburse 161 billion pounds (214 billion dollars) from their student loans according to the government. This amount is more than the annual gross domestic product in 165 countries.

It is estimated that the U.K.’s student loan book could reach over 500 billion pounds by April 2043. And 77% of students who started a full-time undergraduate degree in 2020 are currently not forecast to fully repay their loans.

As a consequence, the current student finance model means that British taxpayers pay billions of pounds to fund student costs that graduates never pay back.

As part of the student debt overhaul, new graduate loans will now be extended up to 40 years. Outstanding student debt is currently written off by the government after 30 years. But the reform means that more graduates will pay their debt in full as loans will need to be reimbursed for 40 years instead of 30.

Paying off student debt from £25,000 of income instead of £27,295

It is “more in line with modern career lengths,” the minister justified for what is often referred to as a “lifelong graduate tax”.

That way, the government expects to have a higher proportion of all graduates to pay their debt in full: 52% of students would be expected to reimburse in full now against the current forecast of 23%.

Moreover, new borrowers from next year will see the repayment threshold lowered. The process to start paying off tuition fees would start once graduates get paid 25,000 pounds a year while the current repayment threshold is 27,295 pounds.

Being qualified for a student loan will also be conditioned to minimum grades in math and English exams. Approximately 5,000 students would be affected by the change as it is the number of students who got into university in 2021 without the math and English requirement newly imposed.

As future students may think twice about joining the university, the minister doesn’t want to set an objective on the number of students, unlike ambitions from the Labor opposition party to get half of the 18-year-olds into universities.

The reform is a lot based on a government report, the Post-18 Education and Funding Review, published in 2019 and also called the Augar report from its lead author. The report considered higher education cost too much to taxpayers.

It for instance noted that there was an “over-supply of some courses” fueled by “undirected government funding”. As such, it recommended universities should also find efficiency savings so that students should not pay tuition fees of more than 7,500 pounds a year, which in the end would reduce student debt.

Read more about the United Kingdom

Higher and Further Education Minister Michelle Donelan speech on the Augar Review, UK government, February 2022, Free accessReview of Post-18 Education and Funding, 2019, Free access, PDF

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