The student loan system must be fair for the taxpayer as well as for the students

Taxpayers shouldn’t be hurt by student loans, Donelan said.

Michelle Donelan, MP

4 minute read

The revision of interest rates on student loans will mean that no student will repay more than he has borrowed in real terms.

Even before entering politics, injustice is something I could never turn a blind eye to.

In my role as Minister of Further and Higher Education, it is essential to ensure that students and taxpayers are treated fairly.

One thing that came up time and time again when I was a backbencher was the interest rates on student loans. Due to interest, students can see their debt increase year after year before they’ve even had a chance to start paying it off.

For me, it has therefore become a personal mission to remedy this. I have long believed that parents and students would have more confidence in the fairness of our system if the government stepped in and said enough was enough.

So I’m delighted to announce yesterday that we’ve done just that. We respect the commitment of our manifesto. We are reviewing student loan interest rates to ensure that no student ever repays more than they borrowed in real terms.

From September 2023, throughout the life of the loan, interest rates will be capped to prevent them from ever exceeding inflation.

In addition, we are freezing tuition fees for two more years. Combined with the previous five years of freezes, new tuition fee freezes and our interest rate review, students will be borrowing up to £11,500 less than they otherwise would.

We are also investing nearly £900 million to provide high quality science, engineering and degree-based learning and education – the biggest increase in grant funding in a decade. We are also creating a new national scholarship program for high achieving disadvantaged students – something that I know will be transformative both from my own background and in my constituency.

The other side of the coin is that in April 2021, the total sum of UK student loans stood at £161 billion. That’s enough money to pay five times the council tax bill of the whole British population.

In fact, there are actually 150 countries whose total GDP is less than our student loan debt. And without intervention, that figure is expected to reach over half a trillion pounds by April 2043.

We need the system to be fair for the taxpayer as well as for the students.

Currently, the government cancels outstanding student loans after 30 years. But consider what that means for the taxpayer in a world where careers are longer than ever.

If you have a degree, you’re likely to be at or near your peak salary in your 50s, but right now is precisely when the loan is handed over to the taxpayer to take care of.

It is certainly not fair that taxpayers – most of whom have never been to college – take the hit at a time when those who benefit from higher education benefit the most.

We want to see graduates continue to benefit financially from college, but why should someone who didn’t go to college pay 44p of every book borrowed by those who did?

We will therefore be asking students to start contributing to their loan once they start earning £25,000 a year. This is still considerably higher than the median salary of £21,500 for young non-graduates, and thus ensures that graduates only start paying back once they start receiving considerable financial gains from their degree.

This is a fair contribution: a graduate earning £28,000 would pay back £17 per month.

And we will cancel loans after 40 years, rather than 30 years. All the while, students will never have to pay a penny back until they start to really benefit financially from the investment the taxpayer has made in their education.

We are also investing almost £900 million in our higher education system to provide high quality education and facilities focused on science, engineering and degree learning – this is the biggest increase in the grant funding in a decade. We are also creating a new national scholarship program for high achieving disadvantaged students – something that I know will be transformative both from my own background and in my constituency.

These are common-sense reforms that truly restore fairness to our higher education system: fairness for taxpayers contributing to the financing of the system, fairness for the graduates who benefit from it.

Michelle Donelan is Minister of Higher and Further Education

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