Number of UK graduates repaying loans rises to 2.5mn

Hundreds extra UK graduates are paying again scholar loans after the federal government final yr froze the earnings threshold at which funds begin, upfront of an extra squeeze on new college students this autumn.

Information printed by the Scholar Mortgage Firm on Thursday, confirmed that the variety of college students making repayments leapt to 2.5mn, representing a 13 per cent improve year-on-year as common contributions crept as much as £1,080 yearly in England.

SLC figures exhibits the influence of the federal government’s choice to freeze thresholds in January 2022. A brand new cohort of scholars will face further stress when beginning programs this autumn as they are going to be required to pay their mortgage again at a decrease threshold of £25,000, down from £27,275.

“For some graduates this may quantity to £20,000 over their working life,” mentioned Kate Ogden, senior analysis economist on the Institute for Fiscal Research. She mentioned the brand new system would squeeze middle-income earners.

The federal government’s actions are seen by critics as will increase in a de facto tax on graduates. Labour has pledged to decrease month-to-month scholar mortgage repayments if elected, however has but to set out how it might implement proposals it claimed wouldn’t have an effect on authorities borrowing.

SLC mentioned that on common English college students graduated with debt round £45,000, a determine in keeping with the earlier two years. An individual with common ranges of debt would want to earn £62,795 a yr or extra to repay the curiosity accrued on their mortgage within the interval, mentioned the IFS.

Evaluation by the think-tank confirmed {that a} sharp improve within the most rate of interest charged on scholar loans to 7.1 per cent, meant a median graduate wanted to earn 36 per cent extra in contrast with final yr to maintain up with curiosity accrued on their scholar mortgage.

SLC figures additionally confirmed that the full mortgage stability grew consistent with earlier years from £181.6bn in 2021-22 to £205.6bn in 2022-23. Accrued curiosity rose 78.3 per cent to £8.3bn, regardless of the federal government finishing up the most important “discount of scholar mortgage rates of interest on file”.

The present rate-setting atmosphere would have meant graduates confronted curiosity on loans as much as 12 per cent final autumn, however the authorities intervened in November to cap the speed at 6.5 per cent till February 2023, earlier than rising to six.9 per cent in March and seven.1 per cent from Could, a fee fastened till August.

Ogden added that frozen reimbursement thresholds meant people incomes over the extent set would pay an extra £340 annually than they in any other case would have, if thresholds had risen consistent with expectations.

Graduates in England are required to pay again 9 per cent of their earnings above a set threshold, relying on after they accomplished their undergraduate diploma. Separate thresholds exist for postgraduate loans and within the devolved nations.

The physique additionally reported a spike within the quantity of voluntary funds made by college students in England, rising 47.3 per cent year-on-year to £542mn in 2022-23. The present mortgage construction means solely these more likely to pay again the mortgage in full profit from such contributions.

“It does make sense for some folks, notably greater earners to make voluntary contributions however general nearly all of folks will nonetheless by no means repay their scholar loans and they are going to be written off,” mentioned Brian Byrnes, head of non-public finance at funding app Moneybox.

The Division for Training mentioned: “Scholar loans shield decrease earners and guarantee those that profit financially from greater schooling make a good contribution in direction of its prices.”