Early Repayment of Student Loans

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As we have reported, the Government issued a consultation in 2011 concerning proposals to penalise students whose circumstances allow them to repay their loans early. The existing repayment rules for student loans allow any student, at any time, to pay more than is required under their loan agreement. The Government’s reforms to the financing of higher education involve:

• applying a rate of interest according to the borrower’s income level, capped at RPI +3% (but still less than commercial borrowing rates),
• increasing the annual repayment threshold to £21,000, and
• writing off any outstanding balance after 30 years.

The Government viewed its student finance arrangements as a single overall package rather than individual low-cost loans to students.  It saw the provision of long-term loans, with interest accruing, as funding for the beneficial terms of this overall package.  Therefore, any ex-student repaying early was seen as detrimental to student financing as a whole.

The consultation looked at three options for imposing an early repayment penalty levy.  It ran from 28 June to 20 September 2011.  In February, we reported that speculation was that Government was poised to drop this proposal.  On 23 February 2012 in a written Ministerial Statement, David Willets MP, Minister of State for Universities and Science at the Department for Business, Innovation and Skills confirmed that Government:

‘will not make any changes to the status quo and will not implement any early repayment system’

A summary of responses to the consultation was produced documenting that there were 154 responses from a wide range of individuals, organisations and representative bodies.  Of these responses, 75% did not agree to the Government’s proposal for a ‘progressive mechanism for early repayment’ (i.e. a charge).

Comment

Whilst this never did directly impact the payroll department, the consultation was part of a range of measures under the Government’s reforms to the financing of higher education.  One part of these reforms involves the raising of the Student Loan threshold to £21,000 by April 2016 (don’t forget that the threshold for this year, 2102/13, has just increased from £15,000 to £15,795).

Further Information

• BIS  – Consultation on potential early repayment mechanisms for student loans
• BIS  – Response to Early Repayment Consultation

Tags: David Willets, Early repayment penalty levy, rpi, Student Loans

This entry was posted on Thursday, April 5th, 2012 at 11:12 and is filed under Students. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.