Last week saw the government’s Department of Education release their proposed changes to student loan financing. Described by some observers as “well-intentioned but wrong-headed”, it’s important to look at has changed and how could you potentially be affected?
What is proposed?
The changes were proposed around three key areas that make academia a little more manageable for students. This saw recommendations of lowering the maximum rate that annual fees are charged at, dropping from £9250 to £7500 and the reintroduction of maintenance grants for students with poorer backgrounds
However, this comes alongside a reduction in the rates that graduates have to start earning from before they are entitled to start repaying the loan, lowering the figure from £25725 to £23000. Under the scheme, graduates will also have to endure deductions for 40 years after graduation rather than the standard practice of Plan 2 loans being written off after a 30-year period.
How does this impact on you?
In short, this is a very mixed bag for graduates old and new.
While lowering values may seem positive, this will have a negative knock-on effect for any individuals that have already passed through the education system. Those that were expecting to have their debt written off at the point of the 30-year grace period will now expect to have their wages garnished for another 10 years – something that can be punishing for those that are struggling with their finances.
This has seen institutions like the Office For Budget Responsibility (OBR) take the dim view that only 38% of the interest and money loaned will be repaid in full. Under this system, it’s fairly clear that it is middle earners who will be hit the most by the proposed changes; with those from less affluent backgrounds remaining broadly unaffected by the proposed changes; with projected payments ballooning from £14,844 to £26,667 over the course of their lifetimes.
However, the introduction of maintenance grants is a sorely needed bonus for those who may otherwise not have the resources to pursue higher education. Higher earners will also draw benefit by being able to pay their loans off faster and incur significantly less interest over the period, leaving those who remain in the middle ground left to endure the worst of the changes.
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