Student loan repayment threshold must be cut to tackle ‘depressing’ rising debt

·5-min read

The earnings threshold at which university graduates begin repaying loans should be lowered to tackle the “depressing experience” of student debt rising every year, a former Conservative minister has said.

Lord David Willetts, who oversaw a hike in tuition fees when he was universities minister, said a higher repayment threshold “particularly upsets” parents of graduates who see their debt increase each year.

The Tory life peer is calling for the salary level at which graduates start repaying loans to be reduced to £21,000 to save around £3 billion of public spending a year.

His plea comes after The Financial Times reported that ministers are considering cutting the earnings threshold at which graduates begin repaying their loans to save the Treasury money.

But education unions and economists have warned that the move – which would see graduates start paying back their student loans sooner – would be “regressive” and a “substantial burden” on graduates.

Scottish independence paper
Former universities minister Lord Willetts has called for new universities to be set up in towns like Blackpool as part of levelling up agenda. Photo credit: David Cheskin/PA wire

Currently, English graduates – who started a course in or after September 2012 – begin paying their loans back when they earn £27,295 or more a year.

Lord Willetts was universities minister when the Government raised the cap on undergraduate tuition fees in England from £3,290 to £9,000 a year.

He said: “It is in the interests of students that universities are well funded. But that should not come at the expense of taxpayers.

“It is wrong that forecast loan write-offs have risen from 28% under the coalition to 53% today.”

In a paper by the Higher Education Policy Institute (Hepi), Lord Willetts added: “This is far too high for what is supposed to be a graduate repayment system.”

The former universities minister is calling for the repayment threshold to be brought back down to £21,000 to save £2.9 billion a year.

“Too many graduates have the depressing experience of their student debt rising each year when they could be paying it off,” he said.

In the paper, Lord Willetts calls for new universities to be created in towns – such as Blackpool to Chatham – to boost the prospects in these areas.

Lord Willetts, who is now president of the Resolution Foundation think tank, which is focused on improving the living standards for those on low to middle incomes, said: “Higher education has fallen out of favour. But it boosts earnings, wellbeing and the prospects of people and areas left behind.

“Conservatives are increasingly worried that graduates are left wing, but the Party’s problem is with young people more widely.

“The best way to tackle this problem is by helping them fulfil their aspirations – to own their home, get a decent job, and – yes – go to university.”

Lord Willetts warned that any cut in student numbers at universities would affect “marginal students in low participation areas”, adding that the “battle would be on the wrong side of the red wall”.

He said: “Levelling up must mean that higher education participation in Hull moves rather closer to Sheffield Hallam for example. Spreading opportunity means increasing participation for the groups that are missing out.

“But if participation overall is to be limited or cut, it becomes a zero-sum game.”

In July, the Government confirmed that funding will be removed for poor-quality courses and qualifications – including a number of BTECs – in England which overlap with A-levels and T-levels.

The Department for Education (DfE) has said apprenticeships, A-levels and T-levels – two-year technical courses that are the equivalent of three A-levels – will become the main progression options after GCSEs.

But Lord Willetts argues that driving students to do T-levels and enforcing a binary divide between academic and vocational courses would be a “mistake”.

He said: “BTECs straddle that divide and are popular with 250,000 students doing them every year. It would be a great error to remove funding for them to force students onto T-levels.”

The Augar review of higher education in 2019 recommended the repayment threshold should be lowered to £23,000 and graduates should have to repay their student loans over 40 years rather than 30.

In January, the Government said that reforms to the student finance system would be “considered” ahead of the next comprehensive spending review.

Jo Grady, general secretary of the University and College Union (UCU), said: “Lord Willetts, as the architect of £9,000 tuition fees, cannot claim to be concerned about the high levels of student debt while simultaneously proposing to hit lower-earning graduates with debt repayments.

“Lowering the repayment threshold to £21,000, which is well below the average wage, will be a millstone around the neck of young graduates and risks putting students off from getting the education they need.

“It also fails to address the systemic problems with the university funding model which has led to rampant job insecurity and a precipitous decline in part-time and mature study.”

A Department for Education (DfE) spokesman said: “The UK is proudly home to one of the finest universities sectors in the world, which plays a vital role in levelling up opportunity across the country and supporting the economy as we build back better.

“The student loan system is designed to ensure all those with the talent and desire to attend higher education are able to do so, whilst ensuring that the cost of higher education is fairly distributed between graduates and the taxpayer.

“We do not comment on speculation in the run-up to fiscal events.”

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting