Reforms to higher education finance system announced

The government is setting out major changes to the way students will repay their university loans, to ensure more students pay back their loan in full.

The value of outstanding loans at the end of March 2021 reached £161 billion and it is forecast to rise to half a trillion pounds by 2043.

To make the system fairer for students, the student loan interest rate will be set at RPI+0% for new borrowers starting courses from 2023/24, meaning that graduates will no longer repay more than they borrowed in real terms. This meets a key manifesto commitment to address student loan interest rates in this parliament.

Combined with the continued tuition fee freeze announced earlier this month, a student entering a three-year course in academic year 2023/24 could see their debt reduced by up to £11,500 at the point at which they become eligible to repay.

Today the government has also announced the tuition fee cap will be frozen at £9,250 for a further two years - up to and including 2024/25, further reducing the real cost to students.

To make the system fairer for taxpayers, the repayment threshold – the point at which graduates start repaying their student loan - for new borrowers starting courses from September 2023 will be set at £25,000 until 2026-27.

This still means that graduates will not start repaying until they have reached well over the current median young non-graduate salary of £21,500.

This makes sure that someone benefitting from a university degree makes a fair contribution to its cost: for example, a graduate earning £28,000 would pay back £17 a month.

Graduate salaries are continuing to rise – in 2020, the average salary for a graduate aged 21-30 was £6,500 higher than for a non-graduate – so it is right we ask those who are benefitting financially from the investment the taxpayer has made in their higher education to contribute towards it.

The student loan repayment term will also be extended to 40 years for new borrowers from September 2023, to ensure more students repay their loan in full, taking into account the fact that people are now working and earning for longer.