How do graduates (borrowers) pay back their undergraduate loans and how does it differs depending on their earnings?
An overview of the series
More than £20 billion goes to undergraduates and universities in England each year. Most of this is paid as loans to students. These are not like conventional loans; the repayment and write-off terms mean the Government expects to make a substantial loss on them.
The Government’s long-awaited review of post 18 education and funding is due in autumn 2021. It could lead to the largest changes in student finance since 2012 is widely expected to introduce higher levels of repayments over the lifetime of many graduates.
This Commons Library series aims to help people better understand what is a complex system, ahead of the review. The first two articles in this series give an introduction to the system and the current financial flows. The rest look at the impact of different hypothetical changes to loan repayment terms, fee levels and grants.
A series on student finance in England
What is the hypothetical effect of reintroducing a means-tested grant for undergraduates, of up to £3,000 a year.
Reducing the fee cap for undergraduates to £7,500 per year would mainly benefit higher earning borrowers, particularly men.
A hypothetical cutting of the threshold to £25,000 would result in middle earners having the largest absolute increase in repayments of any income group.
A hypothetical 1 percentage point (ppt) increase would lead to higher repayments from richer graduates (borrowers), mainly men, in their 40s and 50s.
A 35 year loan term could cut the cost of loans to the taxpayer by £1.5 billion, and a 10% repayment rate could cut the cost by £0.7 billion.