20,000 people forced to repay student loan whilst still studying due to loophole
Over 20,000 university students are forced to repay their student loans each year before they have even finished their course.
The issue, first reported by the I, has been revealed to affect part time students. Under student loan rules, you don't need to start repaying until the April after you graduate from your course however, a "clause" in Government regulations means part time students have to start repaying their loans in the April four years after their course started - this means they could still be studying whilst repaying.
According to data collected by the I newspaper, 23,704 students had to make student loan repayments before the end of their university course in the last tax year repaying £5.2million. The tax year before saw 20,739 students repay £5.5million. The figures suggest that the average part-time student who is making repayments while studying is paying around £218 a year towards their loan – although some can be paying more and some less.
From September 2023, students in England and Wales currently pay 9% of their income over £25,000 to cover their student loans. The current repayment system acts more like a tax, rather than a loan payment. Before this, the threshold sat higher at£27,295 and this was for students who studied between September 2012 and July 2023.
Tax and student finance experts have called on the Government to address this "weird" loophole as the system already creates "higher taxes" for students.
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Dan Neidle, tax expert at Tax Policy Associates, told the I: “We know that student loan repayments can create high marginal rates for recent graduates, in some cases over 80%. But to see student loans create these higher tax rates for students while they’re still studying is even more weird. I hope the Government looks at fixing this.”
Tom Allingham of the student finance website Save the Student said that while student loan repayments are "more manageable than feared" this issue has caused the system to be "arguably worse than one might expect.” Tom said it was “nonsensical” to charge students whilst they were studying and there did not seem to be "any sensible reason” not to amend the loan agreements so that part-time students did not have to repay their loans as they studied - like full time students do.
He added: "Part-time study is a great way of widening participation in higher education, opening up access to – among others – those who are already working and can’t afford to take a hit to their earnings."
A Department for Education spokesperson said it was important to have a “sustainable student finance system that is fair to students and the taxpayer” and when asked whether the Government would consider amending student loan rules the department said the Government had cut interest rates on loans for students starting university from last year “so that new borrowers will not repay more than they originally borrowed when adjusted for inflation”.
They also pointed out that all graduates including those who have studied part-time, who earn less than the repayment threshold will not have to make any repayments and will have their loans wiped after a set period of time, adding: “No commercial loans offer this level of protection.”
The Mirror has approached the Department for Education for comment.
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