According to a new analysis by the Institute for Fiscal Studies, students seeking higher-income graduate jobs will save £ 20,000 in debt repayments if they delay entering university, while middle-income earners will have to pay another £ 30,000 for their lifetime.
The IFS analysis highlights how the change in government student loans in the UK, which will take effect next year, greatly increases the tendency for high-paid graduates to repay loans.
Students in courses such as medicine, economics and law, which can lead to lucrative careers, will benefit from borrowing in a new format from September 2023, because interest rates are lower.
Conversely, students who expect to go into a low-paying job should enroll in a graduate course this year to take advantage of a loan write-off that occurs after 30 years instead of 40 years and a higher starting income before repaying the loan, a change of government.
The IFS noted, “For the 2022 school holidays, this means that the incentive to take a gap year will most importantly depend on their expected future earnings.”
Ben Waltman, a senior research economist at IFS, says: “Student debt reform will reduce the cost of borrowing for taxpayers and higher earners, whereas low-income borrowers will pay much more.
“The exact amount is inevitably uncertain, but our best guess is that lower-middle-income earners from the 2023 entry cohort will face the maximum additional costs of about £ 30,000 in their lifetime.
“The ultimate impact of reform is highly uncertain, and the future will depend on economic development and government policy for many decades to come.”
According to the IFS model, graduates in the lower-middle lifetime income range will earn £ 33,000- £ 36,000 by the age of 30, in today’s sense. Top earners in the top 30% with earnings of £ 50,000 or more at age 30.
The IFS says the government’s changes – announced in a spring statement by Chancellor, Sage Sunak – have snatched away progressive elements of the system introduced in 2012, describing the policy as “moving away from a system that redistributes widely from top to bottom”. Graduation earnings “.
Larissa Kennedy, president of the National Union of Students, described the changes as “calculated cruelty” at a time when the cost of living was rising.
“Ministers are placing young people in unimaginable debt for the next 40 years of their lives. It’s nothing more than an attack on opportunity, “said Kennedy.
Under the existing system, interest rates on loans to high-income graduates are set by the Retail Price Index (RPI) plus 3%. However, the change means only the RPI rate will be used to set the interest rate.
“Under the new system, most will repay what they borrowed – not more or less. It pushes us away from something like graduation tax for which the term ‘student loan system’ is more appropriate, “the IFS said.
For most graduates, the 2012-era loan system involves repaying 9% of their earnings on top of the 30-year repayment threshold, regardless of their total debt. Under the change, with a 40-year repayment period, IFS expects more than 70% of graduates to repay their loans in full.
The IFS also draws attention to the slightest change, which changes the starting point of debt repayment.
Graduates currently pay over £ 27,295 on their earnings, raising the threshold each year in line with average income growth. After the change of government, the threshold will rise more slowly, based on the RPI rate – which IFS says will only cost middle-income graduates more than £ 10,000 to pay higher in their lifetime.
“It simply came to our notice then that there was no significant change in the content of the press announcing the reforms,” the IFS said.
Economists say the changes “make England’s higher education funding system more internationally” by using lower public spending than other developed countries to support higher education.