Labour eyes plan to cut loan repayments without spending more

Party commits to reforming incoming student loan changes, claiming they will ‘eat away at pay’ for graduates

June 2, 2023
Empty wallet

The Labour Party has confirmed that it will not increase government spending to cover the cost of students going to university if it wins power in the next general election, but it has pledged to “reduce the monthly repayments” for graduates.

In an opinion piece in The Times, Bridget Phillipson, Labour’s shadow education secretary, committed to reforming the student loan changes announced by the current government in February 2022 because, she said, they will “eat away at pay” for graduates and “deter older learners from retraining or upskilling”.

Student finance changes – which come into effect this coming academic year – will see the loan repayment threshold lowered to £25,000 from just over £27,000 for new borrowers, the repayment term extended to 40 years from 30 years, and interest rates lowered so loan balances increase only with the retail price index of inflation.

Ms Phillipson said an alternative was available that could reduce graduate repayments “without adding a penny to government borrowing or general taxation”, adding that her party “will not be increasing government spending on this”.

Her criticism of the reforms echoed a House of Lords analysis in January 2023 that found that the changes “make the system less progressive” and could undermine the Conservatives’ own levelling-up policy.

The National Union of Students welcomed the focus on monthly repayments, with Nehaal Bajwa, its vice-president, saying “the priority must be delivering immediate action to get money back in students’ pockets”. “But the challenge is providing a future vision for education which goes further”, she added “providing lifelong access and opportunity for learners”.

At her party’s conference last September, Ms Phillipson said the UK’s higher education funding model was broken, but Labour has been more hesitant to suggest alternative solutions. Last month, party leader Sir Kier Starmer confirmed that Labour would walk back its pledge to abolish tuition fees completely and fund higher education through taxation.

Experts have said a potential government-in-waiting would be wise to consider funding in the round, rather than focusing on fees and repayments alone, with an audit of what the sector contributes towards other political goals such as industrial strategy, net-zero commitments and reforms to the NHS.

Aside from her emphasis on student equity and access, Ms Phillipson said higher education brought wider benefits to the UK, providing an “incredible opportunity for each of us and for all of us” that “enriches our society, our culture and delivers innovations”.

Commenting on the proposals, the Russell Group’s policy manager, Lily Bull, said: “It’s right we consider reforms with the potential to put money back in the pockets of young people to help meet financial pressures, and it’s important this is part of a funding system which supports high quality education, student choice and is fair and affordable for students and the taxpayer.”

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