Lift the £21k threshold for paying back student loans, ministers urged

PRESSURE is mounting on the Government to raise the salary threshold at which graduates pay back their student loans.

MPs from all parties have already called for interest rates on loans – which have rocketed to 6.1 per cent - to be slashed.

Now critics argue that ministers must look again at the £21,000 salary threshold, which has been frozen since 2012. Above this amount, 9 per cent of any income is used to pay off the loan.

The Government had originally promised the earnings threshold level would be ‘uprated annually’ in line with earnings from April 2016 – the point at which the majority of students who began degrees in 2012 would become liable to repay.

But ministers sparked outrage after backtracking in November 2015, freezing the level at £21,000 and forcing more graduates whose salaries exceed this level to repay their loans quicker.

This, along with axing maintenance grants for the poorest students, has led to the lowestearning third of graduates seeing a 30 per cent increase in repayment levels since 2012, the Institute for Fiscal Studies found.

Universities minister Jo Johnson recently confirmed a formal review of the threshold will not take place until 2021. But think tank Bright Blue, which counts more than 100 Tory MPs among its backers, is among those calling for faster action.

Director Ryan Shorthouse said: ‘The Conservative Government needs to and should make a big offer to young people.

‘Scrapping tuition fees or reducing the interest rates would benefit the wealthiest graduates the most. Instead, the Government should increase the salary threshold for repaying loans above £21,000 in line with average earnings.

‘This would mean all young people repaying student loans would pay a smaller amount from their salaries each month. It would effectively be a tax cut for graduates.’

Financial expert Martin Lewis, founder of website moneysavingexpert.com, agrees cutting the interest rate on student loans would only help the highest earners.

This is because the low paid are unlikely to even clear their initial borrowing in the 30-year period before the debt is written off.

In a blog, he said of freezing the £21,000 threshold: ‘That will cost

‘A tax cut for graduates’

almost every graduate except higher earners and hurts the lower and mid earners far more. The opposite to cutting the interest rate.’ Mr Lewis insisted reversing the freeze should be a ‘far greater priority’ for the Government than student loan interest rates.

Prime Minister Theresa May’s close allies are increasingly voicing concerns over student debt and higher education.

The focus comes after Labour energised young voters by pledging to ‘abolish tuition fees’ and hinted at scrapping existing student debt during the election campaign. Last month Mrs May’s former chief of staff Nick Timothy described higher education as an ‘unsustainable and ultimately pointless Ponzi scheme’ that burdens graduates with debt and needs radical reform.

Her most senior minister, First Secretary of State Damian Green, has also suggested there may need to be a ‘national debate’ on fees.

Chancellor Phillip Hammond has asked the bench-bench 1922 committee of Tory MPs for suggestions on how to help young people ahead of the autumn Budget.