Written by Vivi Friedgut

Founder & CEO

While the military situation to our east rightly dominates the news headlines, today is an education announcement day too as the government publishes its long-awaited response to the Augar review of post-18 education and unveils a package of changes to the student finance system.

The Department for Education’s press release states that the new plans will ensure a fairer deal for students and for taxpayers. But what do the changes really mean and what exactly are they trying to achieve?

Aiming to reduce the burden on the public purse

According to the Department for Education, the value of outstanding loans (as at March 2021) was £161bn and it is expected to almost triple within about 20 years.

Two of today’s changes are specifically designed to put the student finance system on ‘more sustainable’ footing and will likely result in the number of people repaying their full loan increasing dramatically from one in four, to one in two. 

The changes are that:

  1. The loan repayment threshold will be lowered from £27,250 to £25,000 (for new borrowers starting courses from September 2023) 
  2. The repayment term will extend to 40 years (from 2026-27 graduates), rather than debt being wiped after 30 years – as is the current system

Trying to make repayments fairer for students

The rate of interest applied to student debt has long been considered unfair and this commitment will ensure student loan interest rates are held at RPI+0% for new borrowers.

How? By capping the interest charged on student loans so that it is tied into the retail price index of inflation instead of a sliding scale to a maximum of RPI+3%.

This part is welcome news for students, as interest rates on student loans compound the burden of the debt. However, concerns have already emerged that overall, the changes will disproportionately impact lower earning graduates.

Shifting away from the idea of university as the best choice for all students

The government’s response to the Augar report also sees a shift away from the idea of university as the best choice for all students. 

Exactly what this will mean in practice remains to be seen, but we are all for school leavers being able to make financially informed decisions about the future that’s best for them.

In fact, this is something we’re already working towards with Blackbullion Futures, in partnership with the Bank of England and Pearson.

What’s next for universities?

The changes announced today present an opportunity for universities to focus their 2022/23 intake efforts, considering that this will be the last cohort of students under the current regime. Students thinking of taking a gap year in 2023 are already being urged to rethink their plans to save themselves thousands of pounds. 

In addition, it may also be useful to reframe the cost of higher education conversation by encouraging students to look at the student debt repayment obligations from the perspective of a monthly commitment e.g. is university worth £10 per month? Rather than the abstract figure of £60k total debt. 

We are disappointed to not see any discussion in the government’s response around the maintenance loan, which remains the unspoken element of the student loan conversation. The rising concern over the cost of living crisis can only be addressed through a revision of how much students have while they are studying.

Join us on Tuesday 1st March to take a close look at how the cost of living crisis and money worries are impacting students, their mental health, physical health and university experience. We’ll share findings from our Student Money & Wellbeing 2022 research (full report also released next week), which shows that the significant gap between what students have and what they need has widened significantly since 2021 – by a whopping 20%. 

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