The government’s new "tax rise by stealth" is expected to hit millions of graduates with increased repayments on their student loans from next year. The announcement came after the universities minister, Michelle Donelan, issued a written statement revealing that the repayment threshold for 2022-23 will be frozen. Under the new rules, a graduate in England earning £30,000 a year will pay an extra £113. If the freeze is extended, it could place a significant financial burden on graduates. The Institute for Fiscal Studies (IFS) think-tank said the move is expected to save the government around £600m.
Donelan’s freeze maintains the income threshold at which repayments start at £27,295 for undergraduate courses. Without the freeze, it would have risen to over £28,000 next year, based on the current rate of inflation. The rules apply to income-contingent loans taken out by English and EU students studying at UK universities since 2012. Postgraduate loans will also be frozen at £21,000.
According to a Department for Education (DfE) spokesperson, the freeze will support a sustainable funding system for higher education in England. However, the move has been criticised by the opposition Labour Party for adding to the cost of living for young graduates, with higher repayments alongside increased taxes and rising housing, food, and energy bills.
The IFS described the announcement as "a tax rise by stealth," affecting graduates on middle incomes, some of whom could face a significant burden. Graduates with lower earnings are not subject to the repayment threshold, while the highest earners would repay their loans regardless. The freeze means they will repay their loans quicker, further reducing their real incomes.
Ben Waltmann, a senior research economist at the IFS, said the impact on graduate incomes would be moderate if the threshold freeze was maintained for one year. However, if extended, it could transform the student loan system. Nick Hillman, an architect of the coalition government’s loan system introduced in 2012, said the freeze reflected the government’s failure to set out a long-term plan. As of 2020-21, about 1.5 million students received loans worth £19bn, with outstanding student loans totaling over £160bn. The average student loan per student at the time of graduation is now £45,000.
