The effect of freezing student loans – new Sutton Trust research

Students face extra repayments of £2,800 if repayment threshold frozen on existing loans with uncertainty for future graduates. New Sutton Trust research brief.

Changes from Chancellor George Osborne’s summer budget which would freeze the student loan repayment threshold at £21,000 for five years will cost the typical borrower an extra £2,800. This new calculation comes from Unfair Deal, a new Sutton Trust research brief by higher education consultant t John Thompson that looks at the effect of this year’s summer budget on students.

The loan repayment conditions for university entrants since 2012 included an income threshold, set at £21,000 in 2016, to be updated annually in line with average earnings. This enabled government to reassure potential students that they would not need to start repaying their loan until they were earning a decent salary.

The Budget introduced a number of significant changes to higher education funding, including the replacement of grants by loans and government is consulting on a proposal to freeze the threshold from 2016 at £21,000 for five years, for all students starting from 2012 onwards.

This will significantly increase the average cost of higher education, particularly for students from low income backgrounds who are currently eligible for maintenance grants.

While the overall average extra repayments are £2,800, there are differences between men and women, with men’s at £2,300 and women’s £3,300. This is because women’s earnings tend to be lower and they are more likely to be repaying across the 30 year repayment period. After the freeze period, there is to be a review to see what follows; if the threshold freeze were extended, the extra repayments would be greater.

According to Unfair Deal, drawing on analysis by the Institute of Fiscal Studies, this change in loan terms will significantly increase the average cost of higher education for students from low income backgrounds who are currently eligible for maintenance grants. The average debt for this group will increase to over £50,000 when means tested maintenance grants become loans in 2016, and the change in loan terms ensure this turns into increased repayments, particularly for those borrowers who do not secure higher paid jobs.

The terms and conditions for taking out a student loan currently include a clause that may allow repayment conditions to be changed retrospectively. The Sutton Trust is concerned that, by agreeing to this condition, students are effectively signing their name to an open cheque. Furthermore, retrospective changes promise to damage trust in the student loans system and introduce an unnecessary level of uncertainty for borrowers.

Unfair Deal recommends that:

· The loan terms for current borrowers should not be changed.

· New borrowers should be given definite terms, which should be guaranteed to apply for the whole repayment period. The uncertainties can be reduced by setting the threshold levels as a percentage of average earnings.

· The longer term risks of student loans should be borne by government, not individual students who cannot be sure of being amongst those successful graduates in well paid jobs.

The Sutton Trust will be feeding its research and recommendations into a government consultation on the issue that closes in mid-October.

Sir Peter Lampl, Chairman of the Sutton Trust and of the Education Endowment Foundation, said today:

“Freezing the repayment threshold for student debt will add to graduates’ already heavy financial burden. The fact that this measure will adversely affect low earners and graduates from low income homes, who are already being penalised by the budget shift from grants to loans, is a serious cause for concern.

I’m particularly worried about the likely effect these measures will have on part-time and mature students. Participation rates for these groups have declined substantially since the increase in tuition fees. There is still time to change tack on this particularly unfair measure and I hope George Osborne will think again.”

Report author John Thompson said:

“If government establishes a precedent for student loan terms changing retrospectively to the disadvantage of borrowers, then in future anything goes. The advice that students have received will turn out to have been based on a false premise, and in future no firm reassurances could be given. There will then be a serious risk that in future students’ decisions as to whether, what, where and how to study will be distorted by their concerns about taking out loans, undermining efforts to ensure higher education is a driver of social mobility.”

For further information or to arrange an interview, please contact: Hilary Cornwell or Conor Ryan on 0207 802 1660.


1. The Sutton Trust is a foundation set up in 1997, dedicated to improving social mobility through education. It has published over 150 research studies and funded and evaluated programmes that have helped hundreds of thousands of young people of all ages, from early years through to access to the professions.

2. John Thompson has written extensively on higher education policy, including a series of reports for the Higher Education Policy Institute on the Browne Review and the Coalition Government policies that followed.

3. The repayment figures produced for this report were calculated using the Simplified student loan repayment model. The report also draws on analysis carried out by the Institute for Fiscal Studies who used their own repayment model. In coming to a judgement as to how the change in loan terms might affect students’ decisions, there has been an extensive literature review. Full details of this evidence will be available on the Sutton Trust website.

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