A series explaining the student finance system in England and potential changes following the Government's review of post-18 education and funding, due autumn 2021.
On 24 February, the Government published proposals to reform student finance in England. The only change for existing borrowers is to the repayment threshold. A wider range of reforms have been proposed for new borrowers from 2023/24.
This Insight looks at the effect of these reforms on student loan repayments for new nurses and teachers who already have loans.
We find that lifetime loan repayments for those on a range of hypothetical earnings profiles are substantially larger than under the current system; between £10,000 and £15,000 more in 2022/23 prices.
What will change for existing borrowers?
The amount someone earns before they pay back their student loan (the repayment threshold) will be frozen at its 2021/22 level, £27,295, for the following two years. After this it will increase annually by inflation (based on the Consumer Price Index-CPI).
When these borrowers started studying, the policy was that the threshold would increase annually in line with average earnings. In most years average earnings is above CPI inflation. This means the amount borrowers have to earn before repaying will be lower than they would have expected. Repayments are 9% of earnings above the threshold, so borrowers will repay more each month under the new policy.
The Insight Impact of lowering the repayment threshold explains how this affects different groups of graduates.
Why look at nurses and teachers?
The standard way to show the impact of changes to student loans is to divide the population of borrowers into predicted lifetime earnings bands. However, these can be difficult to fully understand. It’s not immediately clear which graduates are included in each band: For instance, are they working, full- or part-time, which jobs are in which bands, how many men and women are in each?
Teaching and nursing are large professions that normally require a degree. They have relatively predictable career progression and national pay scales. They are not among the better paid graduate careers. The Government’s proposed changes to loan repayments for existing borrowers will mean higher repayments from lower and middle-earning graduates.
Career earnings assumptions
The figures produced here are based on hypothetical career earnings. These are not meant to be averages for each profession but ‘credible’ profiles for an individual classroom teacher or nurse.
Here we look at teachers and nurses who graduated in 2021, and are working full-time in April 2022 and make the following assumptions:
Promotion/progression: The classroom teacher reaches the top of the main pay scale after six years and the top of the upper scale nine years later. The nurse reaches the top of Band 5 of the pay scale after five years and the top of Band 6, six years later. They have no further promotion or allowances.
A. ‘Rest of England’ pay scale with no career break
B. ‘Rest of England’ pay scale with a five-year career break after 10 years in the profession
C. Inner London pay scale with no career break
D. Inner London pay scale with a five-year career break after 10 years in the profession
Lifetime earnings are highest for scenario C and lowest for scenario B.
Average student loan debt at April 2022 is assumed to be £50,000 for teachers and £35,000 for nurses. It is lower for nurses as the Government reintroduced maintenance support for nursing students in September 2020. The 2021 graduating cohort of nurses would only have been eligible for this support in their final year. However, we use a lower debt figure to make it more applicable to future cohorts of existing borrowers.
These are conservative debt assumptions, but, as explained later, changing them has little impact on repayments.
Impact of the reforms
Repayments would increase under all scenarios, yet none of the borrowers would repay their loans in full. Those working in London, therefore earning the most, see the largest absolute increase in repayments.
Those earning the least, working outside of London and with a career break, see the largest relative increase.
The following chart illustrates how, under these assumptions, the existing threshold would start to ‘catch-up’ with earnings after borrowers had reached the top of their pay bands. This would mean their repayments would have gradually reduced after this point. The slower uprating in the new policy means this does not happen, repayments continue to increase for the whole of the 30-year loan term.
How do these results vary if we change the underlying assumptions?
Debt on graduation
- For those with higher debt there is no impact
- Those with lower debt start to see their repayments fall only if they are able to fully repay their loans within 30 years. In scenario C (the highest earning), a nurse would need to graduate with debt below £24,000, and a teacher below £33,000 for them to fully repay their loans. Even then this would only marginally cut the level of additional repayments in the new policy. These are substantially lower than typical levels of debt.
- Higher earnings – if we assume each point on the pay scale is increased annually by inflation+5%, additional repayments under the new system are higher still: £23,000 and £21,000 more for scenario C nurses and teachers respectively.
- Lower earnings – if we assume each point on the pay scale is increased annually by inflation–5%, additional repayments under the new system are unchanged for a scenario C teacher and slightly (£800) lower for a scenario C nurse.
Actual repayments will depend on an individual’s personal circumstances and how these affect their earnings. These include part-time work, promotion, longer career breaks, different levels of loan debt and pay for additional responsibility/specialisation. Repayments will also be affected by upcoming pay settlements and changes to economic forecast
This Insight does not look at the reforms which affect new borrowers from 2023/24. These will reduce loan debt slightly but increase lifetime loan repayments even further among middle and lower earners.
The Library briefing, The Post-18 Education and Funding Review: Government conclusion gives more detail on the reforms.
About the author: Paul Bolton is a statistician at the House of Commons Library, specialising in higher education.
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