Graduates will still be paying their student loans back into their 60s, under new plans to save millions for the taxpayer.
To ensure that a greater proportion of student loans are paid back, they should be written off after 40 rather than 30 years, according to new Government proposals due to be unveiled on Thursday.
Graduates will also be asked to start paying their loans back sooner with the repayment threshold slashed from £27,295 to £25,000, under the plans.
As an olive branch to students, the interest rates on student loans will be cut for new borrowers, meaning that graduates will no longer repay more than the borrowed in real terms.
The suite of measures are an attempt by ministers to ensure graduates pay back more of their student loans before they are written off and ultimately paid for by the taxpayer.
Officials at the Department for Education (DfE) point out that the cost of student loans is “increasing quickly”.
Their figures show that the value of outstanding loans at the end of March last year reached £141 billion and it is forecast to rise to half a trillion pounds over the next 30 years.
‘A fairer system’
Michelle Donelan, the universities minister, described the raft of changes as “future proofing” the student finance system.
“We are delivering a fairer system for students, graduates and taxpayers,” she added.
But critics noted that the reforms will hit middle-income graduates the hardest, who will end up paying back thousands of pounds more over their lifetime.
A graduate who took out a loan of £45,000 and then gets a job with a starting salary of £24,000, with a 2 per cent increase each year, would repay £47,000 under the existing system but £101,000 under the new reforms, analysis by AJ Bell for The Times shows.
Martin Lewis, founder of MoneySavingExpert.com, said: “The decision to extend repayments to 40 years, combined with the other measures, will leave most who start university straight after school still repaying it into their 60s.
“Since 1991, the cost of further and higher education has been effectively split between the individual and the state. Now the pendulum will again swing sharply towards the individual, who will pay substantially more for their education.”
On Thursday, the Government will publish its long-awaited official Augar review into higher education.
Led by Sir Philip Augar, the former equities broker, it is the first review since 1963 to be ordered by the Government into higher and further education.
Their proposals – which include the reimposition of student number controls – mark the biggest shake-up to higher education funding in a decade and row back on policies pioneered by New Labour and the coalition government, which sought to encourage as many students as possible to go to university.
Ministers believe that while university degrees benefit some students, others graduate saddled with debt that they will never be able to repay and will ultimately be picked up by the taxpayer.
Currently only 23 per cent of graduates are forecast to repay their loans in full, with the rest picked up by the taxpayer but the DfE predicts that if its proposed changes are implemented, this will rise to 52 per cent.
On Wednesday night the Government faced a backlash over their proposals to impose minimum entry requirements, which would see pupils who failed their maths and English GCSEs barred from accessing student loans.
Alternatively, this ban could be aimed at those who fail to achieve EE at A-level, although there would be exceptions to this rule for certain groups, such as mature students.
Paul Blomfield, the Labour MP for Sheffield Central and chair of the all-party parliamentary group for students said this proposal will act as a barrier to disadvantaged children and “risks turning back the clock a generation”.
He said: “Children on free school meals are only half as likely to achieve a grade 5 at GCSE in English and Maths as their wealthier peers.
“To cut their opportunities off at the knees is worse than cruel. Coupled with the plans to reduce Foundation courses at universities, the proposed measures are deeply regressive.”