Spending review means students could pay up to £6,000 more on loans

Students could pay back up to £6,000 more on their student loans due to new policies in George Osborne’s Autumn spending review.

The Chancellor’s modifications will see the earning thresholds, at which student loan repayments begin, frozen for a minimum of five years.

This means that the threshold will stay frozen at £21,000 instead of rising in line with average earnings – as was promised upon the introduction of the new student loans in 2010.

Students who started courses from 2012, or graduated this year, will also be affected by the changes, as the freeze will be backdated, the sale of at least part of the pre-2012 student loan book has also been confirmed.

These changes go hand in hand with the scrapping of maintenance grants, for students from lower-income houses, and they aim to save up to £2 billion a year.

Repayment of loans is at an all-time low and the Department for Business, Innovation and Skills claims that the alterations will result in a 30% reduction of unpaid loans and increase repayments by £3 billion.

The Institute for Fiscal Studies (IFS) says that the poorest 40% of students going to university in England will now graduate with debts of up to £53,000 from a three-year course as a result of converting maintenance grants into loans; Sutton Trust correlates the research.

Their research also indicates that students from households with pre-tax incomes of up to £25,000 will have more ‘cash in pocket’ whilst at university, but they will graduate with about £12,500 more debt due to the conversion of grants to loans.

Sutton Trust’s research also indicates that the frozen repayment threshold will result in the typical borrower expecting to pay back £2,800 more because the modifications will ensure that a higher rate of each loan is paid back.

Comparably IFS’s research shows that middle-income graduates will be hit the hardest, and may end up paying more per year for the majority of the repayment term, they estimate an individual on middling graduate earnings will repay over £6,000 more in total.

Graduate loan repayments will increase by another £3,800 per student, which will reduce the long-run cost to the government by around £1.4 billion per cohort of students, according to IFS.

The IFS’s research also shows that the changes will result in short-term government borrowing falling by around £2 billion a year.

In the long term, however, the amount of money lent to students will rise by about £2.3 billion for each cohort, and only about ¼ of these additional loans will be repaid, meaning government borrowing will only be reduced by around £270 million per cohort of students.

Other points that will impact students include the “retargeting” of the Student Opportunity Fund, which will be cut by a yet unspecified amount.

The review will also affect student nurses, who used to receive grants from the NHS for their degrees, these will be converted into loans and the cap on the number of student nurses will be removed.

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