Students starting college in the UK next year could still pay off student loans into their 1960s, according to new plans the UK government announced on Thursday.
The UK government on Thursday announced a series of reforms to higher education funding, including extending the student loan repayment period to 40 years for those starting studies from September 2023. Currently, government-funded college loans in the UK are being written off 30 years later Students are said to start repaying them first.
Graduates of courses starting next year will also start repaying their loans earlier under the new plans, with borrowers expected to start repaying once they are earning £25,000 ($33,567) a year compared to the current level Threshold of £27,295. This new repayment threshold will remain in place through 2026-27, the Department of Education said.
Student loan repayments in the UK are usually paid directly from graduate paychecks.
The UK Department for Education said only a quarter of students who started undergraduate studies in 2020/21 will currently pay off their college loans in full.
The number of outstanding loans reached £161 billion at the end of March 2021 and is expected to reach half a trillion pounds by 2043.
The government also announced on Thursday that it was freezing tuition fees to a maximum of £9,250 for a further two years up to and including the 2024/25 academic year.
The interest rate on student loans is lowered to the retail price index, which represents the level of inflation. Currently, graduates who started their undergraduate degree on or after September 2012 could pay up to 3% on top of the inflation rate once they earn £27,296.
In addition to the reforms, the government will launch two consultations on Thursday proposing changes to UK college admissions. This includes suggestions that students who fail math and English Baccalaureate exams, or fail to achieve at least two E grades in pre-college exams – known as A-Levels – may not be eligible for a government-funded student loan.
Rosie Hooper, a chartered financial planner at UK wealth management firm Quilter, said the government’s changes to student funding are putting “unprecedented fiscal pressure on prospective graduates”.
Hooper explained that in the UK, principle taxpayers are effectively faced with a tax rate of 42.25% once they earn more than £25,000. She calculated this means students starting courses next year will take home 58p for every £1 they earn and pay £260.55 a year more than graduates on the current loan repayment plan.
However, Hooper said the 40-year extension of the payback period is the “biggest sting” for students, as many graduates would pay a 9% tax for their “entire career.”
She added that the UK government has “conveniently decided to ignore an Augur Review recommendation on UK university funding” in order to bring tuition fees down to £7,500: “They really have their cake and they’re eating it.”
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https://www.cnbc.com/2022/02/24/uk-college-students-could-be-repaying-loans-into-their-60s.html British college students could pay off loans well into their 60s