IFS new report on student loan reform impacts

[boys3]

May be of interest to some considering 2023 rather than 2022 entry. The IFS - Institute for Fiscal Studies - have today published a more detailed analysis of the potential impacts of the student loan reforms.

ifs.org.uk/publications/16021

Their original analysis concluded:

The announced reform package will transform the student loans system
.
Graduates with lower-middling earnings will be hit the most by the changes with a lifetime loss of around £30,000.

The highest-earning graduates will repay around £20,000 less as a result of the lower interest rate.

The long-run taxpayer savings as a result of changes announced at the end of February is around £2.3 billion

The system will also become substantially less generous for middle-earning graduates from the 2012–22 starting cohorts.

with the more detailed analysis released today re-confirming the above but also adding:

The results of our initial analysis hold up when we update our projections using the latest economic forecasts from the Office for Budget Responsibility and new data on graduate earnings

The reform makes the higher education funding system in England even more of an outlier internationally.

The change in threshold indexing from average earnings growth to RPI alone is likely to cost middle-earning graduates from the 2022 and 2023 cohorts more than £10,000 over their lifetimes.

Overall, the highest-earning borrowers will be better off under the system from 2023 onwards, and low-earning borrowers will be better off under the 2022 system

In the medium term, the reforms will result in graduates from the 2023 entry cohort repaying around £750 a year more from 2027–28 (when they typically start repaying loans) if earning more than £33,900.

The taxpayer will likely save more on loans to the 2022 cohort than on cohorts from 2023 onwards as a result of policy changes announced this year

Despite this, the short-term reduction in government borrowing from the reforms will be much larger for cohorts from 2023 onwards than for the 2012–22 cohorts.

The government’s policy choices have made the taxpayer cost of the student loans system less predictable

each of the above points is expanded on a little in the above link, with the full detail in the downloadable report. The page also includes the link to the IFS student finance calculator.

Thanks for highlighting this @boys3. The report flags what many will have not picked up (and which the Government didn't want you to pick up), which is that: 'The taxpayer will likely save more on loans to the 2022 cohort than on cohorts from 2023 onwards as a result of policy changes announced this year.'

This is because the temporary freezing of the earnings threshold, above which you start paying back, and its subsequent, less generous uprating with RPI also affects those on the current 'Plan 2' (2012-2022 entry cohorts). So for those thinking of taking a gap year, it is not as straightforward as 2022 entry 'good' and 2023 entry 'bad'.

The one unreported benefit of the '2023 entry onwards' set-up is that, because the debt/tax obligation only rises with RPI over time, there is more flexibility and scope to pay off the outstanding amount if you find you are able to later in your career.

The current system with its 'hyper' interest rate built in means the outstanding balance accelerates away dramatically even whilst you are still at university, so you are effectively locked in unless you are a very high earner from the outset, which is only true for a small number of people, in a limited number of careers, typically in specific regions.