Tuition Fees Change Will Save Students £15,700


The Government recently announced changes to the way tuition fees work – raising the earnings threshold to £25,000 before students have to begin paying for their university education. It’s a move that, according to the IFS, will save students up to £15,700.

Student fees are a hot topic at the moment, which is perhaps unsurprising, since they’ve been a political cul-de-sac since Labour introduced them almost 20 years ago. Since then, the fees have steadily risen over successive governments, which culminated in Labour, at the 2017 election, promising to end them – as well as claiming that they’ll ‘look into’ scrapping all tuition fees ever.

How ever you feel about them (and economic experts generally believe that, they’re necessary but the existing system is broken) has put the topic, once more, firmly on the front pages. And that’s how we get to the Conservative Party tweaking the current formula to ensure that graduates can earn more before they have to start paying back in.

Now, the Institute for Fiscal Studies has distilled what those changes actually mean for students.

The first major change is the cost. The IFS estimate that raising the threshold from £21,00 to £25,000 will cost the Treasury £2.3 billion a year. In other words, it’ll be funded for by the taxpayer for longer.

The Government also announced a cap on the proposed increase from £9,000 to £9,500. The IFS figures that this will save the Government £0.3 billion. More importantly, the change will save students around £800.

One change, championed by MoneySavingExpert’s Martin Lewis, yet to be put forth by any major political party: Increasing repayment thresholds in line with average earnings. See, with wages currently stagnating, it means graduates are technically paying more back.

According to Lewis:

When the changes to student finance were announced in 2012, it was repeatedly stated by the Government that the £21,000 threshold would rise in line with average earnings in April 2017. In November 2015, it did a U-turn, saying the threshold would be frozen until at least April 2021. However, it’s now set that the student loan repayment threshold will be increased from £21,000 to £25,000 in April 2018 as part of a wide-ranging review of student finance.’

Given that the current freeze is defined by the IFS as welcome but ‘unsustainable’, increasing thresholds in line with average earnings could offer more long-term stability to the system.

On his blog, Lewis states that:

‘It’s important to note that not repaying much because you’re just over the threshold isn’t being bad. The system is, in reality, a graduate contribution, designed so that, in the main, those who gain the most financially out of university contribute the most.’

Ultimately, the IFS warn that the incoming changes to the country’s ‘graduate contribution scheme’ will help students save money and cost the Government a lot more. The rise means that students will end up paying back £15,700 less over the 30-year lifetime of the fee. That’s the point when all remaining fees are scrapped.

However, it also means that 83% of all students will not pay back that debt in full. The burden of which falls on the Government, with long-term costs increasing by 41%. The net result being that 45% of student fees will never be recovered by the Treasury, says the IFS.

Chris Belfield, a research economist at the institute who authored the IFS analysis of the Government’s proposed changed, concluded that the ‘seemingly small change’ would save students up to £15,700 ‘at considerable cost to the taxpayer.

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