The government has announced a major shake up of high education today, which includes making students pay back loans over a 40 year period rather than 30.
Only a quarter of students who started full-time undergraduate degrees in 2020/21 are forecast to repay their loans in full.
The value of outstanding student loans at the end of March 2021 reached £161 billion and it is forecast to rise to half a trillion pounds by 2043.
The student loan interest rate will be slashed to RPI+0% for new borrowers starting courses from 2023/24.
Combined with the continued tuition fee freeze announced earlier this month, a student entering a three-year course in academic year 2023/24 could see their debt reduced by up to £11,500 at the point at which they become eligible to repay.
The tuition fee cap will be frozen at £9,250 for a further two years – up to and including 2024/25, further reducing the real cost to students.
The repayment threshold – the point at which graduates start repaying their student loan – for new borrowers starting courses from September 2023 will be set at £25,000 until 2026-27.
The student loan repayment term will also be extended to 40 years for new borrowers from September 2023, to ensure more students repay their loan in full, taking into account the fact that people are now working and earning for longer.
Education Secretary Nadhim Zahawi said: “Our country’s world leading universities and colleges are key to levelling up opportunity by opening up access to a range of lifelong flexible post-18 options to help people train, retrain and upskill.
“This package of reforms will ensure students are being offered a range of different pathways, whether that is higher or further education, that lead to opportunities with the best outcomes – and put an end once for all to high interest rates on their student loans.
“I am delighted to oversee such a substantial amount of investment – nearly £900m – reinforced by a revised, fairer, and more sustainable student finance system which will keep
“Higher Education accessible and accountable. These changes will create a fairer system for both students and the taxpayer.”
The government has also published two consultations. The first will seek views on how to ensure young people are encouraged to pursue the right path for them, and receive a fair deal for their investment if they choose to go to university. This includes considering the introduction of minimum eligibility requirements.
The second will set out plans to deliver the Lifelong Loan Entitlement (LLE) worth the equivalent of four years of post-18 education (i.e. £37,000 in today’s fees) to support students to study, train, retrain or upskill at any stage throughout their lives through flexible and modular courses.
Commenting on the proposals, David Robinson, Director, Post 16 and Skills of the Education Policy Institute (EPI) said: “We welcome the government’s plans to introduce a Lifelong Loan Entitlement. Giving adults the opportunity and support to further their education and retrain is likely to benefit not only their personal income, but the economy and labour market more widely.
“We do, however, think that the government should proceed with caution in relation to the proposed reforms to higher education funding and access. Proposals to introduce minimum entry requirements for students must be carefully considered by the government, along with an assessment of the impact on disadvantaged and under-represented groups.
“Existing analysis from UCAS suggests that students from low-income families, black students and those from parts of the North and the West Midlands could be most affected by these changes. Many of these students will be applying for university in the next few years will also have experienced considerable learning loss as a result of the pandemic.
“At present, students who do not achieve a grade 4 in English and Maths at GCSE may have limited options in accessing Level 3 courses, including T Levels. This, in turn, means it is harder for them to secure two Es at A Level (or equivalent). It is therefore important that the government considers whether contextual factors, such as student background or learning loss, should be taken into account when applying for student loans. Importantly, the government must also provide resources to support schools to ensure that more disadvantaged pupils achieve these minimum entry requirements.
“The government should also consider the impact of minimum entry requirements and student number controls on specific courses, to ensure these proposals do not jeopardise certain industries, particularly creative skills.”