From September 2023, the interest rate on student loans taken out has also been set to RPI+0% and the length of time that students pay their loans back until they can be written off has also been extended from 30 to 40 years.
University tuition fees have also been capped at £9,250, which is where it has been since 2018, for the next two years and will not rise with inflation.
The Department for Education (DoE) said that the changes would ‘rebalance the burden of student loans more fairly between the student and the taxpayer and ensure that in future graduates don’t pay back more than they borrowed in real terms’.
The measures have been introduced in response to the Augar review of post-18 education and funding which was published in 2019 and are aimed at stemming the soaring cost of student loans. At the end of March last year, the value of outstanding loans stood at £161bn and is forecast to rise to about £500bn by 2043.
Michelle Donelan, higher and further education minister said: ‘We are delivering a fairer system for students, graduates, and taxpayers as well as future-proofing the student finance system.
‘We are freezing tuition fees and slashing interest rates for new student loan borrowers, making sure that under these terms no one will pay back more than they have borrowed in real terms. This government is delivering on its manifesto pledges.
‘We are investing an extra £900m in our post 18 education system and bringing about a revolutionary change in the way students can study, retrain and upskill throughout their lifetime.’
The government stated that the changes would mean that a graduate earning £28,000 a year would pay back £17 a month and that the reforms would mean that more than half, 52%, of students who take out a loan to start a full-time university course will repay in full. This is more than double the current 25% rate.
The government has also launched two consultations alongside the announcement. The first is to seek views on the proposals to introduce minimum eligibility requirements to access student loans – either by requiring students to have a grade four pass in GCSE English and maths, or two Es at A-level and student number controls to clamp down on what the government describes as ‘poor quality, low-cost courses’.
The second sets out the plan for a lifelong loan entitlement for the equivalent of four years of post-18 education which would aim to support students to study at any stage in their life through modular courses.
Sir Philip Augar, who chaired the original post-18 education review, welcomed the reforms which he described as ‘fair and sustainable’.
Augar said: ‘The package is consistent with the spirit of the report of the post-18 education panel and forms the basis of a properly connected further and higher education sector. That connection is long overdue.’
Responding to the announcement, the Association of Accounting Technicians (AAT) has called on the Government to highlight the route of apprenticeships as an alternate route to university.
Phil Hall, head of public affairs and public policy, AAT, said: ‘Higher Education is a great route to employment for some, but it can be an expensive option and the changes made today will make it even less affordable for many. Apprenticeships not only mean no debt for students but earning a salary whilst learning valuable skills, gaining widely recognised qualifications, and getting ahead of the competition too’
