Students could be paying back loans into their 60s

GRADUATES will still be paying their student loans back into their 60s, under plans to save millions for the taxpayer.

To ensure that a greater proportion of student loans are paid back, they should be written off after 40 rather than 30 years, according to government proposals due to be unveiled today.

Graduates will also be asked to start paying their loans back sooner with the repayment threshold cut from £27,295 to £25,000. As an olive branch to students, the interest rates on the loans will be cut for new borrowers, meaning that graduates will no longer repay more than they borrowed in real terms.

The suite of measures are an attempt by ministers to ensure graduates pay back more of their student loans before they are written off. Officials at the Department for Education (DFE) point out that the cost of student loans is “increasing quickly”.

The value of outstanding loans at the end of March last year reached £141billion and it is forecast to rise to half a trillion pounds over the next 30 years.

Michelle Donelan, the universities minister, described the raft of changes as “future proofing” the student finance system. “We are delivering a fairer system for students, graduates and taxpayers,” she added.

But critics noted that the reforms will hit middle-income graduates the hardest, who will end up paying back thousands of pounds more.

Martin Lewis, founder of Moneysavingexpert.com, said: “The decision to extend repayments to 40 years, combined with the other measures, will leave most who start university straight after school still repaying it into their 60s. Since 1991, the cost of further and higher education has been effectively split between the individual and the state. Now the pendulum will again swing sharply towards the individual.”

A graduate who took out a loan of £45,000 and then gets a job with a starting salary of £24,000, with a 2 per cent increase each year, would repay £47,000 under the existing system but £101,000 under the new reforms, analysis by AJ Bell for The Times shows.

Only 23 per cent of graduates are forecast to repay their loans in full, with the rest picked up by the taxpayer but the DFE predicts that the proposed changes would raise this to 52 per cent.

Today, the Government will publish its long-awaited official Augar review into higher education. Led by Sir Philip Augar, it is the first review since 1963 to be ordered by the Government into higher and further education.

Their proposals mark the biggest shake-up to higher education funding in a decade and row back on policies pioneered by New Labour and the coalition government, which sought to encourage as many students as possible to go to university.