Half of graduates(in U.K.) will be paying off loans in their 50s – with middle class students ‘to be hardest hit’
By Laura Clark, Education Correspondent
UPDATED: 23:12 GMT, 8 July 2012
Most students starting university this autumn will be paying off their loans into their 50s, a think-tank has revealed.
Those from middle-income families earning £43,500 a year will graduate with the highest level of debt, which will take longer to pay off.
Some 56 per cent of all graduates will take so long to repay their loan that they will qualify for it to be written off after 30 years, when they are at least 52.
The findings are part of the most detailed research yet into the new university funding regime, which comes into effect in September.
The report warns that seven in ten students will be worse off over their lifetime than under the current system, with average debts due to rise to £37,658 – up from £22,127 this year.
Middle-income students will be worst hit, in a quirk des-cribed as ‘strange’ by the IFS. This is because they may need to take out the maximum loan for living costs and no longer qualify for student grants which would reduce their need for loans.
They are also less likely to be eligible for reductions in fees.
Students from the poorest families will graduate with the least average debt, £34,848, partly because they are less likely to go to universities charging the highest fees. Debts for the richest students will average £37,433, because most will be able to finance some of their education and so will not have to take out a full loan.
The analysis by the financial think-tank also shows the extent to which funding for universities has shifted from the public purse to graduates.while taxpayers will save £3,000
Tough future: Average graduate debts are due to rise to £37,658
After university, ‘the average graduate will be significantly worse off over their lifetime’, per student. Universities are actually better off under the changes, despite deep cuts to their direct public funding.
Analysis of the fees charged by 90 universities shows most will ask for more than the £7,500 the Government first estimated.
In September, the average fee will be £8,660 a year, while 64 per cent of students will be charged £9,000 a year.
The report claimed that students would be ‘significantly better off while they study due to the increased generosity of student support’.
However, once they graduate they face paying back bigger loans for much longer.
Graduates repay their loan through the tax system at a rate of 9 per cent a year on any income above £21,000. Someone earning £25,000 would therefore repay around £30 per month.
Universities Minister David Willetts said: ‘This analysis from a highly respected organisation vindicates our reforms.
‘Students still at university, institutions, taxpayers and poorer graduates will be better off under the new system.
‘The poorest 30 per cent of graduates pay back less, public expenditure is saved, and universities gain more funds.’