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New student loan rules will see graduates paying them off in their 60s


Maria Gregory had always dreamed of studying medicine at university, because she wanted a career helping others.

But a recent shake-up of student finance — which will see graduates pay back loans sooner and for longer — has left her wondering if she should even go to university at all.

Aged 17, Maria is facing a decision that could leave her in debt well into her 60s.

Plans up in the air: A shake up of student finances has left Maria Gregory (pictured), who wants to study medicine, wondering if she can afford the cost of university

It is little wonder then, that the schoolgirl now finds the prospect of a paid-for apprenticeship in engineering more appealing.

Maria, from Portsmouth, says: ‘The thought of not having loans to repay is one of the main benefits of an apprenticeship. If I did medicine, that’s five to seven years of studying — it is a long time and a lot of money.’

Student finance is undergoing its biggest overhaul in more than a decade.

The threshold at which graduates will start repaying their loan will be slashed from £27,295 to £25,000 under the plans.

And the repayment period will be extended from 30 to 40 years, meaning a graduate could be paying back the loan past their 60th birthday. To soften the fall-out, the interest rate on debt will be lowered.

At present, the top rate of interest on student loans is inflation as measured by the Retail Price Index (RPI) plus 3 per cent. Under the new system — which could come into effect for the 2022/23 academic year — graduates will only have to pay interest at RPI.

But this will disproportionately benefit higher-earning graduates such as bankers and barristers — while nurses and arts students will be left to pay more.

Inflation is also soaring, with the current rate of RPI at 7.8 per cent.

Currently a graduate with a starting salary of £25,000 would repay £45,000 of a £50,000 debt until it was written off.

However the overhaul means the same person will repay almost double that — £80,000 — according to estimates by Hargreaves Lansdown. And someone with a starting salary of £30,000 will be even worse off. 

The threshold at which graduates will start repaying their loan will be slashed from £27,295 to £25,000 and the repayment period has been extended from 30 to 40 years

The threshold at which graduates will start repaying their loan will be slashed from £27,295 to £25,000 and the repayment period has been extended from 30 to 40 years

The amount they pay back in a lifetime is currently £65,000. But that will rise to £105,000.

Meanwhile a graduate on £50,000 will only pay £70,000 under the new system. Previously they would have paid £120,000.

This is because the lowered rate of interest will help them to clear the debt faster.

The changes mean students might have to think more carefully about what they choose to study and if it will provide the return on investment a degree has historically promised.

Certainly for nursing graduate Lucy Hayes it would be harder to justify the fees if she were to be heading to university now.

Lucy, 35, has just graduated from Birmingham University and can expect a starting salary of £25,655 a year. If the new system was already in place, she would be paying her student loan back immediately.

And in her lifetime she would end up paying more than an investment banker, which can attract starting salaries of around £50,000.

On top of this, Lucy already has student debt from her first degree in psychology. She says: ‘I would have very carefully taken the changes into account when deciding whether to go back and study.

‘When you already have one loan to pay back, you’re going to think much more seriously about whether to take on another.’

The Royal College of Nursing (RCN) for England has expressed alarm about the shake-up. RCN director Patricia Marquis says: ‘This is a blow to anyone wishing to enter the nursing profession. With thousands of nursing vacancies in the NHS in England alone, the Government needs to implement plans to incentivise student nurses, not deter them.’

Degrees of debt: Jude Stark has his eyes set on a degree in history

Degrees of debt: Jude Stark has his eyes set on a degree in history

Sixth-former Jude Stark’s plans for higher education are up in the air as he carefully considers the impact of the new loans.

The 17-year-old has his eyes set on a degree in history but he is concerned about the amount of debt he is getting into.

Jude, from York, says: ‘It is a lot of money. By the time you start paying it back, you’re at an age where you could be buying a house. But I still really think what you get out of university is worth it in the long run.’

Schoolgirl Poppy Saynor has aspirations to study history and politics at the University of Sheffield. Upon graduating she can expect an average starting salary of around £25,000 a year.

And she already has her eyes set on a career in front-line politics or the civil service.

Under the current student loan system, Poppy expected to clear £45,000 of her debt and interest until it was written off after 30 years. But the new rules mean she will start repaying the loan sooner and for longer. 

She will now pay back around £80,000 in her lifetime — nearly double what she would pay now. Yet for Poppy, from Hertfordshire, this still isn’t enough to deter her from going to university.

‘It is a very unfair system. But it will just feel like a tax to me once I start work,’ she says. ‘I can see why other people my age might find it overwhelming.’

Poppy has also noticed how students are turning away from arts subjects for courses likely to lead to more lucrative careers.

She says: ‘My English literature class has around eight students while there are more than 20 people in my year studying biology, for example.’

So what — if anything — can parents do to mitigate the damage of bigger loans? It may be tempting to help your children avoid the debt by paying the fees up front.

In the past only around one in four graduates would have repaid their loans in full. But according to the Institute for Fiscal Studies (IFS), that figure will rise to around 60 per cent under the new system.

In the past only around one in four graduates would have repaid the loans in full. But according to the Institute for Fiscal Studies, that figure will rise to around 60% under the new system

In the past only around one in four graduates would have repaid the loans in full. But according to the Institute for Fiscal Studies, that figure will rise to around 60% under the new system

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: ‘Rents tend to be much higher than mortgages at the moment. 

‘If they’re trying to put aside money to build a deposit, they might end up with less disposable income than if they were paying off their student loan. So you may wish you’d helped them on the property ladder instead.’

Laura Suter, from investment firm AJ Bell, adds: ‘If they think they will earn enough money in the future to save for their own property then it may be worth paying off the debt now. Forty years is a long time to have a debt hanging over you.’

If parents don’t have a lump sum available to help with student loans, some may consider releasing money from their property by remortgaging or taking an equity release loan.

But Ms Coles says: ‘Technically you may be able to borrow at a lower rate than RPI, so there’s less interest to pay. However this places a bigger financial burden on parents. It could mean paying a bigger mortgage for longer, which could impact their ability to focus on other priorities later in life — such as pension contributions.’

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  • Actual amount paid back will vary depending on loan size, inflation, working life and wage inflation.

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