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STUDENT LOANS

The income threshold for repayment of student loans was revised on 6 April.

Among the reasons suggested for the Conservatives’ loss of seats at the last election were the various pledges and hints about scrapping student loans made by the Labour Party. It was thus not altogether surprising that at last October’s Conservative Party conference Theresa May revealed an increase in the income threshold at which student loans in England start to be repaid. Alongside the move, a freezing of tuition fees at £9,250 until 2019 was also announced.

The loan repayment threshold has now taken effect:

  • The income threshold has risen by £4,000 to £25,000 a year (£2,083 a month) for English (and Welsh) students who started their undergraduate course after 31 August 2012.
  • The maximum saving, for those with income above the new threshold is £30 per month ([£4,000 x 9%/12]).
  • For English (and Welsh) students who started their undergraduate course on or before 31 August 2012 (and for all Scottish and Northern Irish students), their threshold has risen by £555 to £18,330, but they have benefited from regular threshold increases since 2012 and generally pay lower interest (1.5% currently).

 

There has been a technical change in the one of rates of interest for 2012 students:

  • During studythe rate remains at RPI+3% (a total of 6.1% for the current year); and
  • Once the course is finished, the rate is on a sliding scale rising from RPI at £25,000 of income to RPI+3% at £45,000 of income, both thresholds having been increased by £4,000.

 

As the Institute for Fiscal Studies noted at the time of the Prime Minister’s announcement:

  • This seemingly minor technical change “will save middle earning graduates a lot of money – up to £15,700 over their lifetimes”.
  • The change raises the long-run taxpayer cost of providing Higher Education by £2.3bn per year, a 41% increase. The big jump reflects the ongoing decrease in payments from nearly all graduates affected.
  • The lowest earning 40% of graduates are better off under the revised system than they would have been under the pre-September 2012 system. The higher repayment threshold only applies for loans from September 2012, so despite having larger in debts, the low earning graduate will make smaller repayments under the revised regime.
  • The Resource Accounting and Budgeting (RAB) charge – broadly speaking the proportion of student debt that the government is likely to be written off – will rise from 31% to 45%.

 

‘The content of this newsletter is for information only. It does not represent personal advice or a personal recommendation and should not be interpreted as such.  Please do not act upon any part of it without first having consulted an Independent Financial Adviser’.

 

If you would like to know more about further financial planning services we can offer please e mail or call us to discuss:

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info@opusgold.com

 

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