Postgraduate loans – everything we know

In this week’s Autumn Statement, the Chancellor announced that the Government would introduce loans for all young people that want to access postgraduate study, of up to £10,000 across all disciplines. There have been growing calls over the last few years for the introduction of such a scheme from think tanks and sector organisations including IPPR, NUS, CentreForum and others.

The policy which costs around £400m per year, is one of the most significant relating to higher education that the Government has announced since taking office in 2010. The previous highly significant move also came from the Chancellor in last year’s Autumn Statement when he announced the removal of the cap on student number controls from 2015.

This is what we know about the policy so far:

  • Income contingent loans will be available for those under 30 years old wishing to undertake a postgraduate taught masters in any subject.
  • These loans will be up to £10,000.
  • The scheme will be available from 2016-17.
  • Loans will be repaid concurrently with undergraduate loans.
  • The loans are designed so that, on average, individuals will repay in full, in recognition of the high private return to individuals, but they will be better than commercial rates.
  • The Government’s preferred repayment method is to charge an interest rate of RPI+3%, and repayments of 9% of income above a threshold of £21,000, frozen for 5 years.
  • The Government will consult on the detail including repayment, in early 2015 and will confirm the delivery plan following that.
  • The scheme will be available to part time and full time students.
  • The scheme is for England only – English domiciled and EU students at any English university.
  • For next year 2015-16 as a bridge to the new policy, the Higher Education Funding Council for England (HEFCE) will allocate £50 million to universities to offer bursaries on a match funded basis. These will be £10,000 each and will benefit 10,000 students. Some further details here, although more will follow when HEFCE writes to institutions with more information on the 15th December.

You can read everything the Autumn Statement has about this on page 43 of the HMT document here.

The PG loan repayment would ‘concurrent’ meaning that graduates will have to pay back their PG loan alongside their UG loan which could mean giving around 18% of their monthly income above £21,000 in student loan repayments – which is high and where the policy differs from IPPR’s and others which suggested a consecutive repayment mechanism. This measure is clearly a key way in which the Government is ensuring that the loans are paid back – alongside the tough rule on the 30 year old age barrier.

The Institute of Fiscal Studies (IFS) have released a briefing on the Autumn Statement including the PG loan system. They say that the long-term costs of the scheme as it is presented will be ‘modest’ but highlight the high tax rate (effectively 50%) that graduates would be paying if they had both an undergraduate and postgraduate loan:

It is worth saying that those who take out the loan would face rather high effective marginal withdrawal rates on earnings of 50% for basic rate taxpayers (20% income tax, plus 12% NI, plus 9% repayment of undergraduate loan, plus 9% repayment of postgraduate loan) and 60% for higher rate taxpayers.

Read the IFS analysis here.

The IFS has also published a new observation about the RAB charge for the PG loans and questions whether they can be zero given the level of uncertainties at play, although they remain largely warm about the policy itself:

The government’s proposed new postgraduate loan scheme: will the RAB charge really be zero? – IFS Observation here.

The move has been broadly welcomed by the sector so far – University Alliance have put out a warm statement from their Chair, Professor Steve West:

“We strongly welcome the Chancellor’s announcement today to develop a government-backed postgraduate loan system. Postgraduate study is vital to ensure Britain develop s and grow s global talent, which will be key to our future success.”

UCU have said that the proposals “were a step in the right direction, but that more radical ideas were needed to relieve the mounting debt burden on students of all ages.”

Further reaction has been positive, but slightly muted because of the loans will only be available to those under 30 – a tough line that many are clearly unhappy about. Million Plus said “this scheme must be extended to all who want to study for postgraduate qualifications” and Les Ebdon of OFFA said that “In time, I would hope that this scheme can be extended to cover students over the age of 30.”

Nick Hillman of HEPI welcomed the policy but said “The age limit will be frustrating to those who miss out and people will doubtless lobby against it. But it is a preferable starting point to many alternatives, like restricting the loans to certain subjects.”

NUS have welcomed the policy but also intimated that they are unhappy with the 30 year old age barrier. Their statement said “Creating a government-backed postgraduate loans scheme will make a fundamental difference to the lives and opportunities of students, and we will be fighting hard to make sure that all students can benefit from this, regardless of age.”

The Russell Group have responded quite warmly to the proposals and seem to be satisfied that the foundations of the scheme do not give them serious concerns: “We welcome the government’s reassurance that this significant investment in postgraduate support will not create additional regulation, restrictions or costs in the future or divert funds from existing budgets for research and teaching.” Following their angry rejection of the increase in student numbers this time last year, and subsequent Government backlash – if the Group does harbour real concerns then they are likely to be keeping their powder dry, as the policy has only just started its journey through the sausage factory and there’s lots to play for.

CentreForum, who originally published the first report by Tim Leunig calling for PG loans, has added its voice to those questioning the 30 year old age limit. Read their statement in full here.

BIS have published a fact sheet on the policy – you can download that here.

Elsewhere on Wonkhe: Pain, sorcery and a rabbit called Tim – first analysis of the implications of the Autumn Statement from from Andy Westwood.

We will provide further analysis and updates and information becomes available.

7 responses to “Postgraduate loans – everything we know

  1. Existing PCDLs are like normal bank loans that you have to make monthly payments on regardless of income (although you can take a payment break). The thing that makes them different to normal bank loans is that the Government pays the interest while you’re studying.

    These loans will be paid back in the same way as UG SLC loans, where the repayment is income contingent and comes directly out of your salary. If your salary drops below the threshold, you won’t be repaying.

  2. This is a positive development especially as alternative sources of finance that used to be there eg: bank loans or CDL’s have almost dried up. It is also means if you are unemployed or take a career break you won’t have to pay during that period. Pleasing to see that it is for all PG students – not just STEM. Hopefully over time the age limit will be extended (as it is with UG degrees) but it is a good starting point. The question that will still arise of course is repayment by EU students and how much that would add to the loan book?

  3. Where does it confirm in the Treasury document that this is for England only – English domiciled and EU students studying at English universities?

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