Mythbusting, calculator and repayment thresholds

Alex_W_2

Your student loan mythbusting page does not seem to mention one of the changes to the system under it's heading, one which would appear to be quite important, and raises some questions about the figures provided.

The changes to the student fees and loan repayment system also linked both the old and the new thresholds (£15,000 and £21,000) to the economy so that they rise each year.

The old (plan 1) threshold seems clear that it rises with RPI (as set out in HMRC's PAYE update 2, found in the national archives, snapshot 23/07/2014)

The new (plan 2) threshold is less clear (to me) as there was talk about it being linked to income inflation (and I can't find a mention of the final index it'll use), although this was also mooted for the old threshold, so perhaps it is now based on (the discredited) RPI? I believe this is due to start rising after 2015 when the first repayments under that system will will (may?) start to be made.

The old threshold was set at £15,000 from 2005/2006 (up from £10,000 the year before) and changed in 2012 when the new system came in to effect. Since 2012 this has raised to £17,495, reducing payments for students under the old system.

My three questions are:

1) Are you aware of which index the increase to the new threshold is based upon (is it the same as the old - plan 1 - threshold?

2) Should this information be pointed out? It has a significant effect on the repayments of both old and new students, which isn't currently mentioned, and is certainly helps balance out some of the negative points (and may effect someone's decision to go to Uni given they may think that the threshold remains static, and most people are aware that £21,000 in today's money is not the same as £21,000 years in to the future).

3) Do your figures and repayment calculator take this in to account? The fact that you now take the old threshold as the inflated figure suggest they do (your table on the mythbusting page shows the old system with a threshold of £6,910 which is the increased rate as of 2014/15. If the 2012 system hadn't come in this would still be at £15,000 - assuming the government hadn't decided to raise it again), but it isn't specifically mentioned.

Ed-1

Alex_W wrote: »

The old (plan 1) threshold seems clear that it rises with RPI (as set out in HMRC's PAYE update 2, found in the national archives, snapshot 23/07/2014)

Correct. The plan 1 threshold changes annually based on the March RPI from the year before. Labour had in fact planned to increase it in April 2010 (and annually thereafter) by the RPI for March 2009 but the RPI ended up being negative that month so they chose to maintain it at £15000 and review it for April 2011 (see http://forums.moneysavingexpert.com/showpost.php?p=24034335&postcount=90) but they were kicked out of government in May 2010 so never had the chance to review it again!

The new Coalition government decided to fully index link it to RPI from April 2012 (see https://forums.moneysavingexpert.com/discussion/4921914) which is now set out in the regulations.

Alex_W wrote: »

1) Are you aware of which index the increase to the new threshold is based upon (is it the same as the old - plan 1 - threshold?

At the moment the plan 2 threshold isn't indexed to anything. All that's set out in the regulations is that it is £21000.

Vince Cable said that they had an intention to link it to earnings in 2010 but since then wages stagnated and so the write-off rate has ballooned and in all likelihood the Lib Dems won't even be in government in a month's time!

It will take the next government to amend the regulations if that plan 2 threshold is to change so nothing is set in stone.

Alex_W wrote: »

2) Should this information be pointed out? It has a significant effect on the repayments of both old and new students, which isn't currently mentioned, and is certainly helps balance out some of the negative points (and may effect someone's decision to go to Uni given they may think that the threshold remains static, and most people are aware that £21,000 in today's money is not the same as £21,000 years in to the future).

In the MSE guides, they assume the £21000 threshold will change with earnings but that is far from certain to happen for the reasons above.

Alex_W wrote: »

3) Do your figures and repayment calculator take this in to account? The fact that you now take the old threshold as the inflated figure suggest they do (your table on the mythbusting page shows the old system with a threshold of £6,910 which is the increased rate as of 2014/15. If the 2012 system hadn't come in this would still be at £15,000 - assuming the government hadn't decided to raise it again), but it isn't specifically mentioned.

I believe the repayment calculators assume the plan 1 threshold rises with RPI and the plan 2 threshold with earnings.

If the 2012 system hadn't come in, the £15000 threshold may still have changed as, after all, it was Labour's intention to increase it from 2010 (had RPI not been negative).