Student loans bill likely to be higher for lowest paid

Research finds woe for ‘squeezed middle’, windfall for highly paid graduates. Elizabeth Gibney reports

August 1, 2013

Political parties should be considering ahead of the 2015 general election how to change a tuition fee repayment system that is “neither as progressive nor as fair as many of its proponents claim”, an academic study has said.

Under the current system, which will see the first graduates charged £9,000-a-year fees start to repay their student loans in 2016, those with high starting incomes will pay back substantially less in total than some of their lower-paid peers, according to Ron Johnston, professor of geography at the University of Bristol and the study’s author.

Using the government’s own repayments calculator, his analysis compares variations in graduates’ repayments depending on their starting income, plus assumed changes in salary and the rate of inflation.

Considering a debt of £50,025 – arising from a loan covering both fees and maintenance – the study says that a student on a starting salary of £25,000 will repay £159,899 over 30 years, while someone on a £35,000 starting salary will repay just £115,807 over 19 years.

Under the coalition government’s system, graduates pay back 9 per cent of any income earned over £21,000 a year, with any outstanding debt after 30 years written off.

While the student is at university, interest is charged at 3 per cent above inflation. Loans then grow at an inflation-only rate while graduates earn less than £21,000. Above this level, interest grows incrementally to a maximum of inflation plus 3 per cent when wages hit £41,000.

According to Professor Johnston, the study – “England’s new scheme for funding higher education through student fees: ‘fair and progressive’?”, published last month in The Political Quarterly – shows that a “squeezed middle” of graduates will be most disadvantaged.

These are the graduates who were not eligible to receive grants as students and who will earn a few thousand pounds above the repayment threshold but will not be highly paid.

As average starting salaries for men are higher, more women are likely to face higher total repayments, said Professor Johnston.

In banking, finance and insurance, for example – where the study says the average starting salary is £22,500 for women and £29,000 for men – women will pay back £131,416 over 30 years. Male peers will pay back just £109,766.

The system, which Professor Johnston called “both counter-intuitive and inequitable”, could be remedied by increasing the interest rate on the debt for graduates earning the highest amounts, he said, for example rising to 10 per cent for those earning between £30,000 and £40,000 and 11 per cent for those earning £40,000 to £50,000.

Although such graduates would pay back their debt quicker, in total it would cost them more, said Professor Johnston. Equally, if the threshold at which the interest rate stabilised were higher, the better-off would pay more, the study adds.

“It does seem to me that come the 2015 election, it will be about the time repayments are going to start and people will be beginning to realise what they mean,” Professor Johnston told Times Higher Education. “Parties may have to think whether, if they want to go on charging fees, they ought to make the system fairer.”

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