Freezing the student loan repayment threshold

24 July 2015

As announced in the Summer Budget the government are consulting on a proposal to keep the student loan repayment threshold at the same level for 5 years.

The government’s consultation details 2 options:

1. keeping the loan repayment threshold at £21,000 for all students from April 2016, or;

2. freezing it at the level it will have reached in 2020 only for new borrowers starting in academic year 2016-7 and repaying from April 2020.

The consultation states that the preferred option is to freeze the threshold for all plan-2 (post-2012) loans thereby changing the intention to raise thresholds annually in line with earnings.

The consultation will run for 12 weeks and members can expect a short survey asking for your views on the 2 options.

Option 1

The Government’s preferred option is to freeze the threshold for all Plan 2 loans, existing and new. The first borrowers with Plan 2 loans start to repay under statutory terms in April 2016, when the threshold will be £21,000. Under this proposal the threshold will remain at this level for five years, for all English borrowers – new and existing. The threshold will be reviewed from April 2021. This option will reduce government debt the most whilst still ensuring those who do not earn high wages are protected. This is the option that makes the largest savings. It will still ensure that higher education is free at the point of use, and that repayments are affordable for all graduates.

Option 2

The second option is to freeze the threshold for new borrowers only. This will mean that only borrowers starting courses in academic year 2016-17 and subsequent years will be affected. These borrowers will generally expect to start repayment in April 2020. The threshold will be frozen from April 2020 for five years at the same level that the existing post-2012 borrowers’ loan threshold has reached by then. This option reduces government debt, but considerably less than option 1. It constitutes a new student loan plan, and therefore has operational demands and administrative costs associated with it.