Increasing the quantity that graduates in England repay on their student loans might save the federal government near £4bn every year and keep away from universities having their earnings slashed, in line with a report by the architect of the present system of student finance.
Nick Hillman, who was particular adviser to the schools minister in 2012 when tuition charges in England have been raised to £9,000, mentioned decreasing the earnings ranges at which students made loan repayments was the fairest and only approach to hold increased schooling funded at present ranges.
Using modelling carried out for the Higher Education Policy Institute (Hepi), Hillman discovered that chopping the graduate reimbursement threshold from £26,000 to £19,000 would end in many extra graduates making increased contributions over the 30 years earlier than their loans are written off.
The proposal comes because the Treasury is inspecting how you can cut back the price of the student loan system in England, with excellent loans reaching £140bn final yr. Among the modifications mooted embrace chopping annual tuition charges to £7,500, which many vice-chancellors say would trigger extreme funding difficulties.
Hillman mentioned different options designed to save lots of the federal government cash – equivalent to lowering student numbers or spending much less on every student – have been much less efficient and more likely to be much less politically palatable.
“Cutting places at a time of rising demand is particularly unwise, as is giving institutions less for teaching when their finances are already so squeezed,” Hillman mentioned.
“Our modelling shows some of the changes to loans that might be made instead. For example, it is possible to reduce the write-off costs by reducing the repayment threshold or extending the repayment period. Such tweaks might not be popular but they could deliver savings if politicians are determined to find them.
“Reducing the repayment threshold to under £20,000 raises so much it might even enable new initiatives, such as the return of maintenance grants, alongside saving money.”
Under the present system, graduates repay 9% of their earnings over the primary £26,575. Interest is charged on the excellent quantity however the whole remaining together with curiosity is wiped off by the federal government 30 years after commencement.
Hepi commissioned modelling by the consultancy London Economics, which estimated that with none modifications the direct value to the federal government of the 2020-21 cohort of undergraduates was greater than £9bn in written off loans for tuition and upkeep.
London Economics calculated that the typical student debt on leaving could be £47,000, with 54% written off after 30 years. Less than one in eight students would repay their loans in full, whereas one in three wouldn’t pay again a penny.
Cutting the edge to £19,300 – the identical because it was earlier than 2012 – would imply the write-off would shrink from £9bn to greater than £5bn, whereas the proportion of students paying off their all their loans would double. However, common reimbursement charges would rise by £10,000.
The modelling discovered that the opposite proposals have been far much less efficient. Cutting the rate of interest charged to that of inflation – a well-liked proposal for a few years – would in reality enhance the write-offs as excessive earnings graduates made decrease whole repayments. Extending the reimbursement window from 30 to 35 years would make solely a minimal distinction.
Jo Grady, the overall secretary of the University and College Union, mentioned the proposed modifications have been regressive, with the most important impression on low earners.
“Ministers, and those in thinktanks, would do well to remember that even lower-earning graduates already spend most of their 30s and 40s paying effective tax rates of over 40%. A threshold reduction to well below the average worker’s salary would make that a reality for many graduates fresh out of university too, making it harder for them to plan and save for the future,” Grady mentioned.
Hillman mentioned: “Different changes have different impacts on different groups and we urge policymakers who want to save money by tweaking student loans to use the next few months wisely to ensure the impact is as fair as possible.”