Rishi Sunak’s plans for student loans are ‘really bad news for women’, top economist warns

A top economist has warned that Rishi Sunak’s plans for student loans are disproportionately set to negatively affect women over men.

The changes, announced in February, will mean the 2023 university entry cohort will pay more towards their student loans each year when they graduate, and loan balances will only be written off 40 years after repayments start.

The repayment threshold has been brought down from £27,295 to £25,000 beginning in 2026/27, and repayment for Plan 2 loans will be frozen at £27,295 until 2025.

The reforms will lower borrowing by £2.3bn in 2021-22, £11.2bn in 2023, and an average of £5.4bn a year over the remaining years, according to Office for Budget Responsibility (OBR) forecasts.

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However, the government has been warned the move could widen inequalities among graduates.

Resolution Foundation director Torsten Bell told MPs on Wednesday said the changes to the student loans were much better news for men than women.

"This is really bad news for women, and much better news for men," Bell told MPs. "[That is] what this package is really doing."

Bell highlighted that women being are more likely to spend time out of the workforce due to childcare, while continuing to accrue interest, meaning they pay back a higher overall balance.

Furthermore, male graduates on average earn more than female graduates – meaning it is harder for them to pay off their loans.

Institute for Fiscal Studies (IFS) analysis in 2021 found the average 25-year-old male graduate earns 5% more per year than their female counterpart. By age 30, the gender pay gap in annual earnings hits 25%.

"We know that lifetime earnings of male graduates are much higher," said Bell.

"So, it’s not an equal split of men and women amongst those lifetime earnings deciles - and, I can’t remember the exact numbers, but you are going to be a lot more likely to be a loser from this package as a female graduate... partly because of the years out of the workforce."

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Bell's warning comes amid broader fears about student loan changes benefitting higher earners and penalising those outside London.

Ben Waltmann, senior research economist at the IFS, said the changes represent "the biggest shake-up of the student loans system in a decade".

"High-earning borrowers stand to benefit substantially from lower interest rates, but those with lower and middling earnings will lose more than £15,000 in today’s money over their lifetimes as a result of a lower repayment threshold and a longer repayment period that means many borrowers will still be making student loan repayments as they enter their 60s," said Waltmann in February.

Earlier this month, the IFS warned that lower-and middle-earning graduates would pay an additional £15,000-£19,000 over their lifetime towards their student loans – describing the reforms as "a massive retrospective change in repayment conditions”.

And government analysis on the changes by the department of education found young and female graduates — as well as those from "disadvantaged backgrounds, or reside in the North, Midlands, South West or Yorkshire and the Humber” – would suffer most from the proposals.

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When the chancellor was challenged on the issue of student loan repayment changes benefiting those the top 20% earners among graduates, as well as creating regional disparities, he insisted that the changes made the system fairer.

"I think it's completely reasonable that people can benefit from taxpayer subsidised loan, get the benefit from that and higher earnings — then pay back in a progressive way," Sunak told MPs in parliament on Monday. "That's what the system does."

Watch: How long does it take to pay off a student loan?