Student loans salary threshold could rise

The £21,000 graduate salary threshold which triggers student loan repayment could be raised. Ministers are under pressure to lift the amount after which repayment is required amid growing concern about graduate debt, and one option being considered is to raise the threshold either by the inflation rate or by linking it to average earnings. Tory ministers have said it should be “at the very least” linked to inflation.

THE £21,000 graduate salary threshold which triggers student loan repayments could be raised after it emerged ministers are looking at making the system fairer.

Ministers are under pressure to lift the threshold after which repayments are required amid growing concern about graduate debt levels.

One option being considered is to increase the threshold either by inflation or by linking it to average earnings. Another option is to cut the looming 6.1 per cent interest rate on student loans after a report found graduates were leaving university with debts of tens of thousands of pounds.

The news came as Angela Rayner, Labour’s education spokesman, said the party’s plan to cancel all historic student debt would cost £100billion, adding that she needed “a big abacus”.

When the student loan system was launched in 2012 it was agreed that former students would not start to repay fees until they earned more than £21,000 a year.

Ministers also pledged that from April 2017 the £21,000 figure would be increased annually in line with average earnings. But George Osborne, the former chancellor, decided in November 2015 that the cap would be frozen at £21,000 for five years until April 2021, sparking concern from student groups.

Conservative ministers have told The Daily Telegraph that the threshold should be “at the very least” linked to inflation so that it increases over the years. Freezing the threshold, rather than allowing it to increase with inflation or average earnings, means that more graduates have to pay off the loans as their income rises. One Government minister who is not in the education department said: “The threshold at the very least should be index linked so that we can consistently see a rise in it every year to take into account the cost of living.”

There are already calls for ministers to review the 6.1 per cent interest rate at which loans will be charged from September. Friends of Jo Johnson, the education minister, stressed that the “architecture” of student loans was not going to change.

However, one said Mr Johnson was willing to look at reforms around the margin such as increasing the threshold or reviewing the rate at which loans are repaid. The friend said: “The whole system is always under review to ensure it is fair and effective – but its architecture is the right one.”

The Sutton Trust forecast in 2015 that freezing the threshold until 2021 would increase the cost of a loan of £36,000 rise by £2,800 over 30 years.

Jeremy Corbyn, the Labour leader, committed the party to wiping clean previous student debts before the election. That was on top of the party’s commitment – said to cost £9billion a year – to axe tuition fees for all students.