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Review of post-18 education and funding

The Government concluded its long awaited review of post-18 education and funding on 24 February 2022. 

Details of their conclusions were published in the Higher education policy statement and reform. Analysis of the Government’s proposals, background to the review and reaction are included in the Library paper The Post-18 Education and Funding Review: Government conclusion.

Student loan interest rates in 2022/23

RPI inflation to March 2022 was 9%, so the maximum interest rate in academic year 2022/23 would be 12% (RPI+3%) unless it were capped to keep it in line with the prevailing market rate for comparable unsecured personal loans.

On 13 June the Government announced that there would be a 12 month cap on interest rates for post-2012 income contingent loans of 7.3%. This will last from 1 Septmeber 2022 to 31 August 2023. Although if the prevailing market rate is lower than forecast a further cap could be implemented. 

On 10 August the Government said that the cap on interest rates from 1 September 2022 to 30 November 2022 would be lower at 6.3% as actual market rates were below those predicted earlier.

On 9 November 2022 the Department for Education said that the interest rate would be increased to 6.5% from 1 December 2022 to the end of February 2023. Interest rates will revert to 7.3% for the rest of the academic year unless a different lower cap is introduced.

The recent increases in the Bank of England base rate means that the interest rate on ‘Plan 1’ (pre-2012) income contingent-loans has increased to 3.25% from 20 October. 

The IFS had ealier said that under the earlier policy there could be a lag in how caps are implemented and, unless an alternative approach were adopted, it it could take sixth months before rates were capped in 2022/23. 

Student loans are the main method of direct government support for higher education students. Money is loaned to students on subsidised terms to help towards their maintenance costs and to cover the cost of tuition fees.

Scale of student loans in England

Currently almost £20 billion is loaned to around 1.5 million students in England each year. The value of outstanding loans at the end of March 2022 reached £182 billion. The Government forecasts the value of outstanding loans to be around £460 billion (2021‑22 prices) by the mid-2040s.

The forecast average debt among the cohort of borrowers who started their course in 2021/22 is £45,800 when they complete their course. Forecast debt is expected to be lower for those starting in the reformed system from 2023/24 at £43,400. The Government expected that around 20% of full-time undergraduates starting in 2021/22 would repay them in full. They forecast that after the 2022 reforms this would increase to 55% among new students from 2023/24.

Trends in interest rates, amounts loaned and outstanding debt

Student loans in England are large by international standards. The latest OECD analysis found that the average loan in England was substantially higher than in any other country included in the analysis.

Background to student loans and recent changes

Graduates repay student loans to the government after their earnings exceed the threshold level. These loans are therefore one form of private contributions towards the costs of higher education. The student loans system aims to ensure that upfront costs do not deter potential students. Graduates repay student loans and they generally have above average incomes.

In his summer Budget 2015 Chancellor George Osborne announced that maintenance grants would end for new students from 2016/17 and be replaced by loans. He also announced consultations on freezing the repayment threshold for five years, allowing some universities to increase fees in line with inflation from 2017 and a review of the discount rate applied to the accounting treatment of loans. These werethe biggest changes to student finance since 2012. When fully implemented they will mean more money is loaned, both per student and overall, and increase the amount that is repaid by middle and lower earning graduates.

On 1 October 2017 Prime Minister Theresa May announced that there would be changes to the student finance system: the fee cap would be frozen at £9,250, the repayment threshold would rise to £25,000 and a there would be a review of the student finance system.

On 19 February 2018, the Prime Minister announced  that there would be a “wide-ranging review into post-18 education” led by Philip Augar. The review is to look at how future students will contribute to the cost of their studies, including “the level, terms and duration of their contribution.” More detail on the review can be found at: Review of Post-18 Education and Funding

The Review report was published on 30 May 2019, Independent panel report to the Review of Post-18 Education and Funding. The report was a detailed analysis of the post-18 education sector and the funding issues faced by stakeholders. The Library’s briefing paper The Post-18 Education Review (the Augar Review) recommendations give more detail. The Government’s final conclusions on this review had been delayed and were expected to be published alongside the Comprehensive Spending Review in Autumn 2021. However, at the autumn 2021 spending review the Government said its response to the Augar report would be published “…in the coming weeks” alongside details of the higher education settlement up to 2024-25″.

The Government’s final conclusions on this review were finally published on 24 February 2022. This made a number of changes to repayment terms for both new and existing student loan borrowers. The Library’s briefing paper The Post-18 Education and Funding Review: Government conclusion gives more details of the proposals and analysis of the impacts.

The Student Finance Explained series of articles looks at financial flows under the current system and the impact of different hypothetical changes to student loan repayment terms, tuition fee levels and grants. The article What could reforms to student finance mean for teachers and nurses? looks at the additional loan repayments that new entrants to nursing and teaching could make over their working lives.

This note gives a background to student loans, statistics on their take-up, total value owed, repayment, public expenditure, arguments for reform and factors that affect take-up. Student Loans Company data used to cover the UK as a whole, but devolution of student support arrangements caused a change in their geographical coverage. The figures from 2006-07 in this note are for England only. The following Library publications give related information about changes in this sector:

The Scottish Parliament Information Centre’s Student Loans and Repayments compares Scotland and England. Data from the Student Loans Company may also be helpful.

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