Consumer finance champion Martin Lewis has highlighted the impact of the new student loan arrangements, saying some graduates may no longer find a degree worth the cost.
“There is a fundamental misunderstanding about how student loans work, because they are demonized as debt, but under this plan they will work much more like a tax on graduates. For most people it will be like a 9% additional tax charge above the £25,000 threshold.
“Many college graduates will end up paying more than double what they do under current conditions. In practice, most graduates will pay off their student loans for most of their working lives.
“What we have to do as a society is decide where the pendulum should swing between the individual who benefits from their education and the State. This is a clear shift away from the state and towards the individual paying for his own education.
“There are many people who, even under this system, will be rewarded with the increase in income they have. Equally there will be a good portion for whom it is no longer a good value. It’s going to cost you more, so it has to be worth it.
“If college is right for you, then under this funding model, while it will be more expensive than before, it still allows low-income people to attend college.
“We should stop calling it a student loan. This is a tax. It is a form of mortgaged and limited taxation.
“Students will pay under the new plan for 40 years compared to the current 30 years. The amount owed does not determine what is paid each year. All it dictates is when you delete it. Interest rates are lower, but the main beneficiaries of this will be higher-income graduates because they will pay off their loans faster.
“Those with low to medium incomes are going to pay a lot more because they are paying for more time. And those with the highest income will pay faster and pay less.
“Most people will pay off their loans in their 30s to 40s. A lot of the numbers are based on models, but we won’t know how it works for a long time. The goal is for the state to pay less.”
