Student Loans: Interest Rates

Baroness Watkins of Tavistock Excerpts

Monday 11th September 2017 Lords Chamber

[Viscount Younger of Leckie]

The interest rate system ends up being a subsidy. If we think of one-third of students going to university, a third is written off. The whole complex system is designed to ensure there is an effective balance.

[Baroness Watkins of Tavistock (CB)]

My Lords, could the Minister explain how we have got to a position whereby once graduates earn over £21,000, they effectively face a marginal tax rate of 41% after loan repayments are included, irrespective of any rise in the interest rates being charged?

[Viscount Younger of Leckie]

To answer the question about the £21,000, the issue was discussed at length during the passage of the Higher Education and Research Bill. When the current system was introduced, the threshold would have been around 75% of the projected average earnings for 2016. Since then, updated calculations based on ONS figures show the figure is now 83%, reflecting weaker than expected earnings.