UK Graduates May Be Forced To Repay Student Loans Sooner
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- Presently, student loans are only repaid if graduates hit a £27,295 salary annually
- The new proposals may reduce the salary threshold to £22,000.
- Lowering the salary threshold to £22,000 would save the Treasury around £2.5billion a year.
UK graduates will have to start repaying their student loans sooner after leaving the university under Government plans to raise around £2.5 billion a year. In a new proposal that is likely to spark a new political debate, graduates will have to start repaying their loans ‘once their salary hits £22,000’ a year.
At the moment, graduates only start repaying their student loans once they start earning £27,295 a year.
Details on this proposal are expected to unfold in the coming weeks as part of Government reforms to student loans and tuition fees. The Treasury is expected to present a case against the current system with an argument that it is unfair to all taxpayers who fund the loans – of which billions worth never gets repaid.
According to a report by the Telegraph, a Whitehall insider told affirmed the ‘fairness’ argument saying that “Normal working people, a lot of whom do not go to university and benefit from student loans, are paying for this.”
With this new proposal, graduates might have to make adjustments to their debt management plans as they would be required to pay £200 and £475 more every year in student loans, according to the Higher Education Policy Institute (HEPI) estimates.
There is an emerging agreement among Number 10, the UK Department of Education and HM Treasury that the threshold for repaying student loans should be lowered to either £22,000 or £25,000.
Lowering it to £25,000 would save the Treasury about £1.1 billion for each new year of students, while reducing it to £22,000 would lead to savings of up to £2.5 billion.
The new proposal is, however, likely to spark a new political row given that young people were hit hardest by the recent tax changes as graduates will now pay more tax than a pensioner earning double their salary.
For example, a university leaver earning £30,000 annually will be pay 21.5% in taxes while a pensioner taking home $60,000 will be taxed just 20.1%.
With such proposals, many young people may find themselves over-indebted and that is why getting into suitable Individual voluntary agreements can go a long way in helping with your personal finances.
