IFS response to the freeze of student loan repayment threshold

Responding to the announcement, Ben Waltmann, Senior Research Economist at the Institute for Fiscal Studies said:

"Today’s announcement of a freeze in the repayment threshold on student loans effectively constitutes a tax rise by stealth on graduates with middling earnings. Graduates with the lowest earnings do not reach the repayment threshold for student loans, so they will be unaffected by the freeze. Those with the highest earnings will pay off their loans either way, so the freeze just means that they will repay their loans quicker. For a graduate earning £30,000, this announcement means that they will pay £113 more towards their student loan in the next tax year than the government had previously said. This will be a further hit to the real incomes of these graduates on top of the rising cost of living, the freeze in the personal allowance, and the hike in National Insurance rates.

"What really matters is how long this threshold freeze will stay in place. If it is only for one year, the impact on graduates will be moderate, and the government can only expect to save around £600 million per cohort of university students. If it stays in place for longer, it could transform the student loan system, with a much lower cost for the taxpayer and a much higher burden on graduates than they thought they had signed up for when they took out their loans."