Students who start college in the U.K. next year could still be repaying student loans into their sixties, under new plans announced by the British government on Thursday.
The U.K. government announced a number of reforms into university financing on Thursday, which included extending the student loan repayment term to 40 years for those starting a course from September 2023. Currently, state-funded college loans in the U.K. are written off 30 years after students are first due to start repaying them.
Graduates of courses starting next year will also start repaying their loans sooner under the new plans, with borrowers expected to start repayments once they earn £25,000 ($33,567) a year, down from the current threshold of £27,295. That new repayment threshold will stay in place until 2026-27, the Department for Education said.
Student loan repayments in the U.K. typically come straight out of graduates’ paychecks.
Britain’s Department for Education said that currently just a quarter of students who started their undergraduate degrees in 2020/21 are set to fully repay their college loans.
It said the number of outstanding loans reached £161 billion at the end of March 2021, and is forecast to hit half a trillion pounds by 2043.
The government also announced on Thursday that it was freezing tuition fees at a maximum of £9,250 for another two years, up to and including the academic year 2024/25.
The student loan interest rate will be cut to the retail price index, which is the level of inflation. Currently, graduates who started their undergraduate course on or after September 2012 could be paying as much as 3% on top of the rate of inflation, once they earn £27,296.
In addition to the reforms, the government is also launching two consultations on Thursday proposing changes into U.K. college admissions. This includes proposals that students who fail math and English high school exams, or do not gain at least two E grades in pre-college exams — known as A Levels — may not be eligible to get a state-funded student loan.
Rosie Hooper, a chartered financial planner at U.K. wealth management firm Quilter, said the government’s changes to student financing put an “unprecedented fiscal squeeze on future graduates.”
Hooper explained that basic rate tax payers in the U.K. will effectively be faced with a tax rate of 42.25% once they earn more than £25,000. She calculated that this means students starting courses next year will be taking home 58p for every £1 they earn, paying £260.55 a year more than graduates on the current loan repayment plan.
However, Hooper said the 40-year repayment term extension was the “biggest sting” to students, as it means many graduates will be paying a 9% tax for their “entire professional career.”
She added that the U.K. government had “conveniently chosen to ignore” a recommendation by the Augur Review into the U.K.’s university funding, to cut tuition fees to £7,500: “They are truly having their cake and eating it.”