Millions of graduates could be forced to pay an additional Â£ 656 under plans to lower the salary threshold at which they start paying off student loans.
Chancellor Rishi Sunak reportedly intends to shake up student loans by lowering the income trigger for higher education fees in order to tighten public finances. The move is in fact a new tax on graduates, experts have warned, and comes after an increase in national insurance, which has imposed hundreds of pounds in additional taxes on young workers.
The changes to student loans are part of a shift aimed at placing the burden on graduates rather than taxpayers and discouraging young people from going to university, pushing them towards cheaper job training.
A reduction from the current threshold of Â£ 27,295 would reduce the monthly income of graduate workers who started university after 2012, who return 9% of income above the threshold to the government. There has been no clarity on the level to which the Treasury plans to reduce the threshold.
An independent review in 2019 advised the threshold should be Â£ 23,000, corresponding to the average income of a non-graduate. The study indicated that the limit would increase each year based on average salaries, so graduates only pay if their earnings are higher than those without a higher education.
Reducing the student loan repayment threshold to Â£ 20,000 would save the Treasury Â£ 3.8 billion and cut student loan cancellation costs by 54% to one-third, according to a report by the group of reflection Higher Education Policy Institute.
A person earning the current limit, Â£ 27,295 per year, and therefore paying no fees, would pay an additional Â£ 386 per year if the threshold were lowered to Â£ 23,000, according to figures calculated by AJ Bell, a fund store. A graduate would pay an additional Â£ 656 if the Chancellor drastically cut to Â£ 20,000. A person earning Â£ 30,000 would see their bill more than double, from Â£ 244 to Â£ 630, if the threshold was lowered to Â£ 23,000.