Labour's Student Loan Policy Could Impose £9,300 Additional Cost on Graduates
Young workers earning minimum wage in the UK may face a significant financial burden under Labour Party government plans, with a stealth tax increase estimated at £9,300. This stems from a freeze on the salary threshold for student loan repayments, which could affect the lowest-paid graduates as wages rise.
Threshold Freeze Impacts Repayment Timing
Chancellor Rachel Reeves has maintained the threshold at which graduates begin repaying Plan 2 student loans at £29,375 for the next three years, as announced in the Autumn Budget. Under current regulations, graduates repay 9% of their earnings above this threshold. With the National Minimum Wage set to increase from £12.21 to £12.71 per hour in April, and projected to rise further, many graduates working full-time could soon exceed the frozen limit, triggering earlier repayments.
This policy shift means that more graduates will start repaying their loans sooner than anticipated, particularly impacting young workers who are most vulnerable to financial strain. According to a report from the Centre for Economic and Business Research, the average graduate could pay an extra £9,300 on their student debt due to this freeze.
Criticism from Economic Experts and Campaigners
Kate Ogden, an economist at the Institute for Fiscal Studies, highlighted the unintended consequences of the policy. She stated, “By the end of the freeze, we may well see graduates working full-time at just above the minimum wage starting to make repayments towards their Plan 2 student loans. This was not intended when these loans were first introduced.”
Oliver Gardner of the campaign group Rethink Repayment expressed concerns about fairness, noting that the lowest-earning graduates could face a marginal tax rate of 37 percent. He argued, “This is hugely demoralising, and will further damage their future by punishing them for trying to earn more.”
Government and Labour Party Responses
A Government spokesperson defended the current system, asserting that it “protects lower-earning graduates.” Meanwhile, a Labour Party representative explained that the threshold freezes were implemented to safeguard taxpayers and students in the present, as well as future generations. The policy aims to balance immediate financial protections with long-term sustainability, though it has sparked debate over its impact on young workers' economic prospects.
As the minimum wage continues to climb, the interaction between wage growth and frozen loan thresholds will likely remain a contentious issue, with potential implications for graduate debt and workforce morale.
