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The Student Debt Update

• March 04, 2022

It feels as though the world of student debt is changing daily and it can be hard to keep up…

So here is everything that needs to be known about the changes.

New statistics are being released showing how the government plans in regards to student loans.

These state how those who are due to start university in the next year will possibly be paying off their loans for 40 years after graduating instead of the current 30 years.

This is to allegedly reduce the bill for taxpayers as the ex student will be paying off the loan for an extra 10 years.

Not only is this the case, but the threshold for salary repayment has been lowered. This means that as soon as graduates earn £25k a year they will begin paying off their undergraduate loan - this is a reduction from the £27,295 salary that was required before.

Currently for England and Wales, student debt works like so:

For the average student who finished their degree, individuals will take out two separate loans - tuition and maintenance.

The current tuition fees are £9,250 a year.

Then let’s say you had a maintenance loan of £7,213 a year (though this loan will change depending on your household income and if you live in London or not).

This would mean that after you graduate you would be in £49,389 debt.

And this is just the amount before you add the 1.5 - 4.5% interest.

Though this will likely never be wholly paid off, it is still extremely daunting to have this huge number looming over a new graduate, with a small percentage leaving their bank account every month once reaching the threshold.

A student loan differs from a regular loan from the bank in a lot of ways:

- Has a time limit (is cleared after 30 years before Sept 2022 students, 40 for after)

- The amount paid depends on earnings

- It does not affect your credit score

- You will not lose precious items from repossession if you cannot pay

Currently you will pay back 9% of your income when you earn over £27,295 a year.

So, say you earn £30k a year, you would be paying back just over £20 a month and £243 a year before interest.

This depends on the Retail Price Index (RPI) which depends on inflation and currently is at 1.5%.

The interest is also dependent on your salary and will fluctuate between 1.5% and 4.5% - gradually increasing the more you earn.

These rates will be cut for new students under these plans and will settle at the rate of inflation.

Back in 2012 the government increased tuition fees to reduce the amount they paid out for this, though this makes less sense as it means more money loaned out with less payback and so taxpayers are still having to pay for this.

It is estimated that 81% of students will not pay back the entirety of their loans and that only 38% of total money/interest will be repaid.

This is why the government has lowered the salary threshold to £25k a year for students to start repaying their loans as they hope it will gain them more money back.