Instruments drawn to the special attention of the House
Education (Student Loans) (Repayment) (Amendment) Regulations 2022 (SI 2022/301)
Date laid: 16 March 2022
Parliamentary procedure: negative
These Regulations intervene to maintain current repayment thresholds for student loans for one year, thereby avoiding an automatic 4.6% increase of these thresholds on 6 April 2022. The Department for Education expects this to generate an estimated £3.7 billion of savings over the period up to and including financial year 2024–25. We note that while this will result in savings for the Government, this will be matched by increased payments by borrowers of student loans. While we recognise the Department’s intention to ensure the ongoing sustainability of the student loan system, we are concerned about the impact on those who have student loans, in particular as the Government have said that they will maintain the current repayment thresholds up to and including financial year 2024–25. It would have been helpful for information on the impact of these changes to have been provided in the Explanatory Memorandum.
The Regulations are drawn to the special attention of the House on the ground that they are politically or legally important and give rise to issues of public policy likely to be of interest to the House.
1.These Regulations have been laid by the Department for Education (DfE) with an Explanatory Memorandum (EM). They make changes to maintain current repayment thresholds for student loans that applied in financial year 2021–22 for financial year 2022–23, to avoid an automatic 4.6% increase of these thresholds on 6 April 2022.
Background
2.Under the current system, financial support for students is provided in the form of income-contingent repayment loans, issued by the Student Loan Company (SLC), with a minimum income threshold above which repayments are required. Once borrowers reach their statutory repayment due date (SRDD), they have to repay 9% of the portion of their income that falls above the repayment threshold, unless their income is below the repayment threshold. There are different repayment thresholds for borrowers who started studying in academic year 2011–12 or before (Plan 1 loans); borrowers who started studying in academic year 2012–13 onwards (Plan 2 loans);1 and postgraduate borrowers (Plan 3 loans). Since 2018, the Education (Student Loans) (Repayment) Regulations 2009 (“the 2009 Regulations”)2 have provided for the repayment and interest thresholds for Plan 2 student loans to adjust annually in line with changes to average earnings.
3.Plan 2 loans have variable interest rates. Interest is charged at a rate of Retail Price Index (RPI) +3% until the SRDD is reached. After this point, the interest rate charged varies depending on the borrower’s income. The lower interest threshold–below which borrowers are charged an interest rate of RPI+0%–is aligned with the repayment threshold (currently £27,295). Interest then increases on a sliding scale to RPI+3% for borrowers earning over the higher interest threshold (currently £49,130).
Changes made by this instrument
4.Following an announcement in January 2022,3 this instrument intervenes to maintain the current repayment threshold for Plan 2 borrowers at its current level of £27,295 for the financial year 2022–23. The post-study interest thresholds that apply to Plan 2 loans will also be kept at their current levels for the financial year 2022–23: The lower interest threshold will remain at £27,295 to align with the repayment threshold, and the upper interest threshold will remain at £49,130.
5.The Department explains that without the changes made by this instrument, the repayment threshold would have risen automatically by 4.6% on 6 April 2022 to £28,555. This compares to median annual earnings for young graduates (age 21 to 30) of £28,000 in 2020, up from £24,500 in 2016 and £6,500 higher than for their non-graduate counterparts. According to DfE, keeping the repayment threshold at its current level of £27,295 for the upcoming financial year will ensure that graduates continue to make a “reasonable contribution” to the cost of their education.
6.While the Plan 3 (postgraduate) threshold will also be maintained at its current level of £21,000, the Department says that this does not require any changes to legislation because, unlike Plan 2 loans, there is no provision in the 2009 Regulations for the automatic uprating of this threshold. The Plan 3 threshold has remained at £21,000 since the introduction of master’s loans in academic year 2016–17.
7.DfE says that it will bring forward further regulations to implement wider reforms to student finance terms, as announced in February 2022.4
The impact on borrowers with student loans
8.According to DfE, the changes made by this instrument will generate an expected £3.7 billion of savings in public sector net borrowing over the period up to and including financial year 2024–25, thereby helping to ensure the ongoing sustainability of the student loan system. We note that while this will result in savings for the Government, this will be matched by increased payments by borrowers of student loans. While we recognise the need for financial prudence in the public sector, we are nevertheless concerned about the impact the changes will have on those who have student loans. DfE told us that it expects around a million students to face slightly higher repayments (up to a maximum of £9.45 per month or £113.40 per year) in financial year 2022–23 as a result of this instrument, with borrowers who earn between £27,295 and £28,555 seeing lower increases to their repayments than these maximum amounts. It would have been helpful to include this information in the EM.
9.Given that an annual uprating mechanism that was introduced in 2018 is being suspended to the detriment of borrowers, we asked whether this was the first such intervention. DfE told us that student loan repayment thresholds have been maintained at the same level previously for successive years:
“When Plan 2 loans were introduced in 2012 an initial threshold of £21,000 was specified, with Government initially stating this would increase “periodically to reflect earnings”,5 before clarifying that the threshold should be uprated every year in line with earnings from 2016.6 However, Government subsequently announced that the Plan 2 repayment threshold would be maintained at £21,000 from 2016 until at least April 2021. At that time, the 2009 Regulations did not provide for automatic increase of the Plan 2 threshold, so no amendment to regulations was required. In the event, the threshold was maintained at £21,000 for two further years until the Government announced in October 2017 that it would be increased to £25,000. An amendment to the 2009 Regulations, on 5 March 2018,7 implemented this change and introduced a provision for the threshold to uprate annually in line with the percentage difference in average earnings from April 2018.
The repayment threshold for Plan 1 (pre-2012) student loans was kept at £10,000 between 2000 and 2005, and at £15,000 between 2005 and 2012. The Regulations were amended in 20118 to provide for annual uprating of the Plan 1 repayment threshold from 2012 by reference to the percentage increase in RPI.
Further, the repayment threshold for Postgraduate (Plan 3) loans has been kept at £21,000 since these loans were introduced in academic year 2016–17. There is no provision in the 2009 Regulations for automatic uprating of this threshold.”
10.The EM states that the terms and conditions for student loans that students must sign before any money is paid to them “make clear that the conditions of the loan may change in line with the regulations that govern the loans”. We asked the Department whether it expects to intervene again should current financial pressures continue. DfE responded that:
“[The] Government announced on 24 February, as part of its Higher Education Policy Statement,9 that the Plan 2 repayment threshold will be maintained at its current level of £27,295 for an additional two years beyond the provision made by this instrument, up to and including financial year 2024–25. After this, it is the Government’s intention that the Plan 2 repayment threshold will increase annually in line with the percentage increase in RPI in subsequent years, rather than average earnings, as is the case with the threshold for Plan 1 loans. A further instrument will be laid in due course to implement these changes, together with changes to repayment terms for new student loan borrowers commencing courses from September 2023.”
Conclusion
11.This instrument intervenes to maintain current repayment thresholds for student loans, thereby avoiding an automatic 4.6% increase of these thresholds in April 2022. DfE expects this to generate an estimated £3.7 billion of savings over the period up to and including financial year 2024–25. We note that while this will result in savings for the Government, this will be matched by increased payments by borrowers of student loans. While we recognise the Department’s intention to ensure the ongoing sustainability of the student loan system, we are concerned about the impact on those who have student loans, in particular as the Government say that they will maintain the current repayment thresholds up to and including financial year 2024–25. It would have been helpful for information on the impact of these changes to have been provided in the EM. The Regulations are drawn to the special attention of the House on the ground that they are politically or legally important and giverise to issues of public policy likely to be of interest to the House.
1 This also includes borrowers who take out loans for new higher education short courses (see paragraphs 28 to 29 of this report).
2 Education (Student Loans) (Repayment) Regulations 2009 (SI 2009/470).
3 Department for Education, ‘Higher Education Update’ (28 January 2022): https://questions-statements.parliament.uk/written-statements/detail/2022–01-28/hlws555 [accessed 5 April 2022].
4 Department for Education, ‘Higher Education Update’ (24 February 2022): https://questions-statements.parliament.uk/written-statements/detail/2022–02-24/hlws619 [accessed 5 April 2022].
5 Department for Business Innovation and Skills ‘Statement of Higher Education Funding and Student Finance’ (3 November 2010): https://www.gov.uk/government/speeches/statement-on-higher-education-funding-and-student-finance--2 [accessed 5 April 2022].
7 The amendment to increase the Plan 2 repayment threshold annually by average earnings was made by the Education (Student Loans) (Repayment) (Amendment) Regulations 2018 (SI 2018/284).
8 The amendment to increase the Plan 1 repayment threshold annually by inflation was made by the Education (Student Loans) (Repayment) (Amendment) Regulations 2011 (SI 2011/784). These Regulations provided for the threshold to rise until 6 April 2016 and then to remain at the same level. The 2009 Regulations were further amended by the Education (Student Loans) (Repayment) (Amendment) Regulations 2014 (SI 2014/651) so that the automatic uprating of the Plan 1 threshold continued after 2016.
9 Department for Education, ‘Higher Education Update’ (24 February 2022): https://questions-statements.parliament.uk/written-statements/detail/2022–02-24/hlws619 [accessed 5 April 2022].