Money Saving Expert Martin Lewis has warned the government that changing the way student loan repayments are calculated could present a “risk to the nation’s fertility” if higher salary deductions prompt graduate workers to delay starting a family.
Interviewed on the FT’s Money Clinic podcast, the financial expert was commenting on plans to lower the salary level at which graduates have to start repaying their loans. The Financial Times has reported that ministers are considering reducing the threshold from its current level of £27,225 to about £23,000 in future, though no official announcement has been made.
Previous changes to the level of the threshold have been applied to all English graduates who started courses after September 2012, as well as current and future university students. However, Lewis said that any decision to lower the threshold retrospectively for existing graduates would be a “breach of natural justice” that risked blighting the finances of millions of lower earners.
Podcast: Martin Lewis attacks student loan changes
Claer Barrett interviews Martin Lewis, founder of moneysavingexpert.com. Listen here
With the cost of living rising fast, he predicted “so many knock-on issues” would arise, including the possibility of young workers opting out of pensions auto-enrolment to boost their pay packets.
“That’s one form of financial disaster, but the spread of this is so much wider than this,” he said. “You could even argue there’s a risk to the nation’s fertility because if people are shelling out so much money in early days, people tend to put off when they want to start a family.”
The Money Saving Expert also pledged to campaign against any changes if they were applied retrospectively to all English graduates with “Plan 2” loans.
“If this is retrospective, then for me it’s a breach of natural justice and it’s certainly something I would be yelling about,” he said. “Should students be scared? Yes.”
The student loans system works more like a graduate tax. Graduates must repay 9 per cent of anything they earn above the level of the threshold, which continues until their loans are repaid, or 30 years has passed. However, only the highest earning graduates stand a chance of clearing the entire debt plus interest during this time.
Lewis said lowering the threshold would unfairly penalise lower earners who would start to repay sooner. As they are highly unlikely to clear their debts, they would be stuck paying an extra 9 per cent tax charge for a longer period of time.
However, he said the 20 per cent of graduates expected to repay the full debt within 30 years stood to benefit.
“Repaying more quickly means they will in fact pay less interest because they won’t have the loan for as long,” he said. “Within the cohort of university leavers, this is a very substantially regressive move — costing those at the lower end, benefiting those at the higher end.”
The Augar review of post-18 education in 2019 recommended the threshold be lowered to £23,000. A response to this report could be forthcoming around the time of the Budget and spending review.
Lowering the threshold to this level would add around £400 per year to what most post-2012 graduates are currently repaying.
Someone on a salary of £30,000 would see their monthly student loan repayments soar from £20 to nearly £53. Yet from next April, they would also be paying an extra £21 per month in national insurance.
Collecting extra loan repayments could save the Treasury just under £2bn a year, according to the Institute for Fiscal Studies.
Podcast guest 24-year-old Ola Majekodunmi graduated during the pandemic with student debt of £65,000, which includes non-refundable accommodation costs from her final year.
Still living at home after landing her first job, she said having to repay a higher proportion of her salary would make it even harder to move out.
“For me, it comes as a kick in the teeth considering we’ve just had news of a national insurance hike which affects young adults and graduates,” she said.
“Young adults just don’t know where to put their money at the moment. We’re being stretched every which way on a salary that’s already diminished because of the amount of taxes we already have to pay.”
Ola has set up her own financial blog called All Things Money in response to the challenges she faces as a graduate on a budget.
Lewis, who has long campaigned for student finance to be made fairer and easier for graduates and their families to understand, reiterated his call for the system to be rebranded as a “graduate contribution”.
“It’s time to get rid of the name student loans and call it what it is, which is a graduate contribution system,” he said on the podcast.
“In other loans, you can’t change the terms retrospectively. And therefore it is unfair to expect students and graduates to have worked out that the system is completely misnamed, completely miscommunicated, and they’ve signed up to something that’s fundamentally different to what they thought they did.”
To listen to the full interview, click on the link above or search for ‘Money Clinic’ wherever you get your podcasts