Fairer Fixes: Student loan reform that actually makes a difference

Summary: up to £388 a year better off

• The Good Growth Foundation has modelled cost-effective alternatives for student loan reform to create a fairer, more progressive system for lower and middle-earners.

• We have prioritised two models for analysis:

  • Repayment threshold increase to £33,696: We have found that a median earner experiences savings of up to £388 a year and £32 per month. 

  • Repayment rate reduction: For a reduction in the repayment rate to 6%, a median earner can expect to save £290 a year and £24 a month.

• Our polling shows that 57% of the public views the current system as unfair. Only 36% believe the current settlement benefits low or average earners, compared to 49% who believe it benefits high earners.

Why These?

Good policymaking is equitable and progressive. Student loan reform is the right thing to do, but this principle cannot be lost in the debate. Models that address interest, for example, would likely mostly benefit higher earners.

We wish to offer a fairer fix. As such, we have prioritised two models for our analysis for reforming Plan 2: addressing repayment thresholds and reducing repayment rates. Both of these models have been chosen because we find they are the most likely to positively impact low and middle-earners

Our Fairer Fixes

Fairer Fix 1: Repayment Threshold Increase

This proposal suggests raising the repayment threshold to £33,696 (the median wage for 22-29 year olds) from the anticipated £29,000 in April.

Raising the threshold at which you begin paying back your student loan would mean graduates could earn more before they begin their loan repayments. This would be most beneficial to low and middle-earning graduates.

Our analysis finds that, under this proposal, a median earner saves £388 a year and £32 per month. 

Fairer Fix 2: Repayment Rate Reduction

This model proposes cutting the repayment rate to below 9% and extending the loan repayment term to counter the increased cost of the policy. Increasing the repayment term results in higher earners paying more over time, subsidising the cost to lower and middle-income earners.

Graduates can keep a higher proportion of their monthly take-home pay, which increases the spending power of graduates and immediately addresses the largest day-to-day burden.

In a model where the repayment rate is cut from 9% to 6%, the median earner can expect to save £290 a year and £24 a month. 

Polling and the Political Case for Reform

GGF recently released nationally representative polling on public attitudes to the current settlement for student loans. We found that:

• 57% of people considered the current settlement to be unfair;

• Less than 4 in 10 people (38%) think university is good value for money;

• Just 16% of those polled believed the system should remain unchanged.

Our full analysis and polling tables are available upon request.