The cost of amending repayment thresholds alongside changes in interest rate and loan repayment period – June 2021

Practice area: Economics of Education | Education and Labour Markets | Higher education | Public Policy
Client: Higher Education Policy Institute
Published: 10 June, 2021
Keywords: modelling quantitative analysis Education and labour markets

London Economics were commissioned by the Higher Education Policy Institute to undertake some modelling of higher education fees and funding arrangements. Based on the current system of repayments facing the 2020-21 cohort of undergraduates, we were asked to model the resource impact on the Exchequer of the removal of real interest rates, the possible extension of the repayment period from 30 to 35 years, as well as changes in the repayment threshold for graduates. The analysis illustrates that depending on the option, significant savings can be achieved by the Exchequer although there are significant differences in the distributional effect on different graduates depending on their expected earnings. In particular, the removal of real interest rates benefits high earning (predominantly male) graduates, while the extension of the repayment period neither impacts the highest of lowest earning graduates, but detrimentally affects middle income graduates. The full analysis is presented here.