That is the assessment of the Institute for Fiscal Studies, which warned today that borrowers would face “rather high effective marginal withdrawal rates on earnings”, owing to the combined effect of repayments for postgraduate and undergraduate loans, alongside tax and National Insurance.
The University and College Union said that meant the plans should undergo “a pause and a proper rethink”.
The CentreForum and Institute for Public Policy Research thinktanks had previously recommended a postgraduate loans scheme where repayments were deducted at 9 per cent on the portion of earnings between £15,000 and £21,000 – the latter being the level at which undergraduate loan repayments start under the post-2012 system.
However, in a break with that proposal, the Treasury’s autumn statement document said that the postgraduate loans would be repaid “concurrently” with undergraduate borrowing.
In a briefing on the autumn statement, Paul Johnson, IFS director, posed the question of whether postgraduate loans could create the same burden of write-offs as the undergraduate system.
“Probably not,” he said. “The loans are smaller, postgraduates earn more, and the government’s illustrative scheme charges a higher interest rate. Our initial modelling suggests the long-term cost of the illustrative scheme should be modest.”
He added: “But it is worth saying that those who take out the loan would face rather high effective marginal withdrawal rates on earnings of 50 per cent for basic rate taxpayers (20 per cent income tax, plus 12 per cent NI, plus 9 per cent repayment of undergraduate loan, plus 9 per cent repayment of postgraduate loan) and 60 per cent for higher rate taxpayers.”
The Million+ group of newer universities has also raised concerns about the level of deductions from salary postgraduate borrowers would face.
Sally Hunt, the UCU general secretary, said: “The IFS analysis demonstrates the pitfalls of increasing students’ debt burden to fund an expansion of postgraduate education.”
She added: “The noble aim of making it easier for students wishing to carry on studying should be at the heart of this policy. We will be delivering our own proposals in this area in the new year and are very happy to work with government and politicians of all stripes to deliver a much fairer system.”