UK students face paying back twice loan amount

London: Hundreds of thousands of graduates will have to repay almost double what they borrowed under the new tuition fees regime.

Figures produced for the Daily Mail show that some undergraduates who take out the maximum loan of £43,500 (Dh256,650) to cover both course and living costs could end up repaying £71,346. They also reveal that anyone who earns more than £24,000 a year during their career will have to repay significantly more than previous graduates.

The worst hit will be those who get the largest salary rises because they would be expected to pay back more of what they owe.

Those who only get small pay increases would never repay their debt, which will be written off after 30 years when most are 51.

A Daily Mail investigation based on research by data analysts Moneyfacts has revealed that graduates on modest incomes could be hit with having 45p of every £1 they earn taken from their pay cheque. This would be taken in taxes such as National Insurance and income tax, plus student loan repayments and contributions in to the new national pension scheme.

From 2012, a new student loan system will change the way debts are repaid and how much money university entrants can borrow. From the coming academic year, universities will also be allowed to charge higher annual fees of up to £9,000.

Currently, student loans start being repaid once a graduate earns more than £15,000, and they then repay 9 per cent of earnings above this figure. At present, the majority of graduates repay their loans after 13 years for men and 17 for women.

New system

Under the new system, repayments start at 9 per cent once graduates earn £21,000, but are expected to increase as their pay rises.

If the Retail Prices Index (RPI) were 2 per cent, a graduate earning £21,000 would also repay 2 per cent in interest, while one earning £22,000 would pay 2.15 per cent.

Once he or she earns £41,000, the interest rate is frozen at the RPI plus 3 percentage points.

With the loan written off after 30 years, the Moneyfacts figures show graduates with a debt of £43,500 who start on £21,000 and get an average pay rise of 3 per cent a year would never repay all their loan. Instead, they would pay back £33,217 over 30 years.

Those who get a 5 per cent pay rise would repay £64,239 and have £27,222 written off, and those who get a 7 per cent pay rise would repay £71,346 but repay their debt after 28 years.

Moneyfacts assumed that inflation stayed at the Bank of England's target of 2 per cent.

However repayments are not the whole story.

Those earning more than £21,000 will lose 9 per cent in student loan repayments, but also 20 per cent income tax, and 12 per cent on National Insurance. Anyone graduating after 2017 will also have 4 per cent taken in pension contributions. This totals 45p in the pound.

Figures from the Chartered Institute of Taxation show a graduate earning £22,000 will lose a total of £5,829, some 26 per cent of their total pay.