Millions of graduates will face higher repayments on their student loans next year after the government announced a ‘stealth tax hike’ which will cost £100 or more a year.
A graduate in England earning £30,000 a year will pay an additional £113 in the coming tax year, after Universities Minister Michelle Donelan made a written statement to Parliament freezing the reimbursement threshold for 2022 -23.
The Institute for Fiscal Studies (IFS) think tank said the move would save the government around £600million if left in place for a year, but if extended the freeze would impose a much higher financial burden on graduates.
The freeze announced by Donelan will maintain the income threshold at which reimbursements start at £27,295 for those who have completed undergraduate courses. If the current rate of inflation had been applied, it would have topped £28,000 next year.
It applies to income-tested loans taken out by UK and EU students who had studied at UK universities since 2012. The repayment threshold for postgraduate loans will be frozen at £21,000.
A spokesman for the Department for Education (DfE) said the freeze would support higher education in England with a sustainable funding system.
“We need to make sure the system remains fair and open to all who have the ability and ambition to benefit from it,” the DfE said.
Labor condemned the move as raising the cost of living for young graduates, with the higher refunds being accompanied by higher taxes and rising housing, food and energy bills.
Matt Western, the minister for shadow universities, said: “We have a cost of living crisis in Downing Street, and while No 10 is crippled Rishi Sunak is raising taxes for millions of people.”
Ben Waltmann, senior research economist at IFS, said the announcement was actually “a stealth tax hike” for middle-income graduates.
“Graduates with the lowest incomes do not meet the threshold for repaying student loans, so they will not be affected by the freeze. Those with the highest incomes will repay their loans anyway, so the freeze just means they will repay their loans faster,” Waltmann said.
“For a graduate earning £30,000…it will be a further hit to the real earnings of those graduates on top of the rising cost of living, freezing of personal allowance and higher National Insurance rates.”
Waltmann said if the threshold freeze was maintained for just one year, the impact on graduate earnings would be moderate.
“If it stays in place longer, it could transform the student loan system, with a much lower cost to the taxpayer and a much greater burden on graduates than they thought they had enrolled in when they enrolled. took out their loans.”
Nick Hillman, an architect of the loan system introduced by the coalition government in 2012, said the freeze reflected the government’s failure to set out a long-term plan.
“Few students or recent graduates will welcome this announcement, but it makes sense because the current system has become unbalanced, with taxpayers paying far more than originally expected,” Hillman said.
In 2020-21, loans worth £19 billion were given to around 1.5 million students. Outstanding student loans now total more than £160billion, but most graduates are unlikely to repay their debt in full until the loans are canceled after 30 years. Average loans now stand at £45,000 per student upon graduation.