For those with a political bent but who are sick to the back teeth of Brexit, the world of HE is surely a good place to find some respite.
With the outcome of the sector-shaping Augar review looming, speculation is rife as to what the long-awaited review will recommend. For those who can’t wait until the final report, there are plenty of leaks (such as the alleged introduction of variable fees), and even a report by the ONS on how to account for student finance. A veritable wonk’s dream.
Unfortunately, despite all of the ink spilled over possible fee changes, one area seems to have been completely overlooked – that of the payback threshold. This is odd, because it is almost certainly the most important determinant of future graduates finances.
The payback threshold consists of two things – the point at which you start paying back your student loan and the percentage of that income that you pay back. Currently you only pay 9% of what you earn over£25,000, so a graduate on £24,000 a year will pay nothing and a graduate on £30,000 a year will pay £450. Even the most disillusioned graduate is not going to face destitution because of their degree (although, admittedly, the consequences of being forced to read Hegel may be far worse).
This threshold was initially planned to be £21,000. This was to be frozen until 2020 until the government decided to raise it to £25,000. While this episode was in graduates’ interests, there’s currently no clear information on what happens next. If £25,000 is frozen and we continue to have positive rates of inflation, this could have potentially disastrous results for low income graduates.
There are two things necessary to understand how bad something is – the impact on individuals and how many people it affects. If the £25,000 was frozen for thirty years – the period for which a graduate is liable to payback their student loan -and inflation was consistently 3%, the threshold would have effectively dropped to £5784, well below the level at which we currently tax people.
If we had levels of inflation as we did in the 1970s, in only ten years the threshold would drop to a meagre £7693. However good or bad you judge this to be, it is certainly impactful. Of course, neither of these scenarios are likely. The government will unlikely completely freeze the threshold forever. However, they may not raise it with inflation, and try and lower it to the original £21,000 level (cutting the RAB by around 10%).
So, how many people would be affected? Well, it is currently estimated that 85% of graduates will never fully repay their loans (with the assumption that the threshold rises). So, whereas any increase in fees is at most going to affect 15% of graduates, changes in payback rates will affect all graduates. Even those who pay them off completely will still payback more earlier on.
Currently, just under 50% of 18 year olds attend university. This means that the electorate of the future will have a much larger constituency of graduates than is currently the case. Graduates are more likely to turn up to the ballot box and a whole new picture of political influence emerges. This will become akin to the pension triple lock (i.e. raising the state pension in line with inflation, average earnings or 2.5% depending on what’s higher). Pensions affect everyone, but only later in life; yet the overwhelming majority of graduates’ yearly budget will be affected by the threshold.
Graduates and prospective students looking at the cost of university need to remember a number of things when the Augar review comes to fruition, not least the possibility of a Corbyn government shredding it or a Brexit-stricken government ignoring it completely. It is essential that they do not get sidetracked by the promises of lower fees, only to find the real cost kicking in later in their careers.