Are You Affected By The Tuition Fee Repayment Threshold Raise?
At the recent Conservative Party conference, Prime Minister Theresa May announced a change in student funding. While tuition fees were originally intended to increase year on year, they are now set to be frozen at £9,250.
Since many students will never repay their student loans as it is, an increase in tuition fees in unlikely to affect the total amount repaid anyway, except among the highest earners. There are also suggestions of reintroducing education maintenance grants in England, the scrapping of which was an unpopular move among students.
However, the big news is that the income threshold for repayments is being raised. This will have a large impact on low earning graduates. The change is expected to begin from April 2018, but it is likely that it will apply to anyone who took out their loans since 2012. So what does this mean for you financially?
If you earn £21,000
As it stands, students who took out their loans following the increased tuition fees in 2012 – to a maximum £9000 a year – will start to pay off their debt once they start earning £21,000 a year. Any income over this threshold will have 9% taken off, which will be put towards paying off the debt.
For low earning graduates, the repayments are currently manageable. Those on a salary of £22,000 will repay £7 a month, while those on £25,000 repay £30 a month. Over time, this amounts to thousands of pounds. These monthly payments will continue for the next 30 years, when the debt is written off.
So here’s the maths: graduates earning £25,000 are currently paying back £360 a year. In practice, you can expect your salary to increase each year.
However, for simplicity’s sake, let’s assume you continue to earn £25,000 for 30 years after graduating. As it stands, a graduate on this salary will have repaid £10,800 by the time the debt is removed. If May’s plans are implemented as she has set out, this graduate wouldn’t have repaid a single penny.
Anyone earning between £21,000 and £25,000 for a few years following graduation can expect to save thousands of pounds. This is great news for low and middle earning graduates, who can use this saved income for other investments.
It is harder than ever for young people to buy a house. House prices continue to rise to a point that many graduates believe they will never be able to scrape together the deposit needed to get a mortgage. With an extra £10,000 in the bank, the dream of owning a house could become a reality for those on a modest salary.
For lower and higher earners
For graduates who never earn more than £21,000, the changes won’t affect you. You’ll be repaying nothing either way.
However, for graduates who go on to earn higher incomes, you may be negatively affected. If you start on a salary of under £25,000 but go on to earn much more, your repayments will have been made more slowly.
This means that it takes longer to repay the loan in full, meaning that you ultimately repay more. However, all graduates are given the option to pay back their loans more quickly if they wish to, so this shouldn’t be a problem.
While the news that tuition fee increases will be frozen is significant, it is unlikely to have much effect on the financial standings of graduates. However, the raising of the threshold is likely to save thousands of pounds for any student who started their degree after 2012. That’s millions of students who can be thankful if this new policy is implemented.