Martin Lewis: Student Loan Changes Could Cause Fertility Crisis
Money-saving expert Martin Lewis has warned the government that changing the way student loan repayments are calculated could pose a “risk to the nation’s fertility” if higher wage deductions incent graduate workers to delay the creation of a family.
Interviewed on the FT’s Money Clinic podcast, the financial expert commented on plans to lower the salary level at which graduates must start repaying their loans. The Financial Times reported that ministers are considering lowering the threshold from its current level of £ 27,225 to around £ 23,000 in the future, although no official announcement has been made.
The earlier threshold level changes were applied to all English graduates who started classes after September 2012, as well as current and future university students. However, Lewis said any decision to retrospectively lower the threshold for existing graduates would be a “violation of natural justice” that risked ruining the finances of millions of low-income people.
Podcast: Martin Lewis Tackles Student Loan Changes
Claer Barrett interviews Martin Lewis, founder of moneysavingexpert.com. Listen now
With the cost of living rapidly rising, he predicted that “so many training problems” would arise, including the ability for young workers to opt out of automatic pension enrollment to increase their wages.
“It’s a form of financial disaster, but the spread of it is so much wider than that,” he said. “One could even argue that there is a risk to the fertility of the nation, because if people spend so much money in the beginning, people tend to delay when they want to start a family.”
The money-saving expert also pledged to campaign against any change if it were applied retrospectively to all English graduates on ‘Plan 2’ loans.
“If it’s in retrospect, then for me it’s a violation of natural justice and it’s definitely something I would cry out against,” he said. “Should students be afraid? Yes.”
The student loan system works more like a tax on graduates. Graduates must repay 9 percent of anything they earn above the threshold level, which continues until their loans are repaid, or 30 years have passed. However, only the highest paid graduates have a chance to write off all of the debt plus interest during this time.
Lewis said lowering the threshold would unfairly penalize low incomes who start repaying sooner. Since they are very unlikely to write off their debts, they would be forced to pay an additional 9% tax for a longer period.
However, he said the 20 percent of graduates who are expected to pay off all debt within 30 years could benefit.
“Paying off faster means they’ll actually pay less interest because they won’t have the loan for that long,” he said. “Within the college leaving cohort, this is a very markedly regressive movement – costing those at the bottom of the ladder, benefiting those at the top end. “
The Augar review of post-18 education in 2019 recommended that the threshold be lowered to £ 23,000. A response to this report could be given at the time of the budget and expenditure review.
Lowering the threshold to this level would add around £ 400 per year to what most post-2012 graduates are currently paying back.
Someone with a salary of £ 30,000 would see their monthly student loan repayments drop from £ 20 to almost £ 53. Yet from next April they would also pay an additional £ 21 per month in national insurance.
According to the Institute for Fiscal Studies, collecting additional loan repayments could save the Treasury just under £ 2 billion a year.
Guest on the podcast, 24-year-old Ola Majekodunmi graduated during the pandemic with student debt of £ 65,000, which includes non-refundable accommodation costs from her final year.
Still living at home after landing her first job, she said having to repay a higher proportion of her salary would make the move even more difficult.
“For me, it’s a kick in the teeth given that we have just learned of an increase in national insurance that is affecting young adults and graduates,” she said.
“Young adults just don’t know where to put their money right now. We are strained on an already reduced salary because of the amount of taxes we already have to pay.
Ola started her own financial blog called All things money in response to the challenges she faces as a graduate on a limited budget.
Lewis, who has long been an advocate for making student funding fairer and easier to understand for graduates and their families, reiterated his call for the system to be renamed “Graduates Contribution”.
“It’s time to get rid of the name student loans and call it what it is, a graduate contribution system,” he said on the podcast.
“In other loans, you can’t change the terms retrospectively. And therefore, it is unfair to expect students and graduates to understand that the system is completely misnamed, completely mis-communicated, and that they have subscribed to something that is fundamentally different from what it is. they thought they did.
To listen to the full interview, click the link above or search for “Money Clinic” wherever you get your podcasts