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Student News

Government To Scrap Plan For Loan Repayment Penalty

The Government are expected to announce plans to abandon the proposed penalty for students who pay their student loan back early. The move has been met with fierce criticism from the University and College Union (UCU). The union has criticised the Government for endorsing further policies that are 'designed to make life easier for the wealthiest in our society'.

Business Secretary Vince Cable, of the Liberal Democrats, had been behind the proposal that would see students charged an annual rate of 5% on payments made above a set limit. The decision was taken in an attempt to avoid wealthier families paying back student loans early. A growing trend has emerged in recent years that has seen parents pay back their child's loan early to avoid them being weighed down by debt as they enter working life.

However, the move would also have seen students who earned a higher amount of money in their graduate jobs at risk of being charged the penalty if they found themselves in the position to make more substantial repayments.

The decision to scrap plans supposedly comes after research found that those earning around £18,000 would be more likely to make extra repayments than those who are wealthy. A desire to escape the stress of debt was seen as the more likely reason for extra repayments being made rather than being in a financial position to do so. As a result the Government are expected to announce that plans would have been detrimental to thousands of students.

However, these findings can be seen as flawed when considering the knowledge graduates would have of charges that would be imposed on them. Under the current system there is no penalty for making early repayments giving students an extra incentive to pay back early. If the intended scheme had been introduced it would have acted as a deterrent to students considering paying back early whether they were earning £21,000 or £80,000.

Should you repay your student loan early?

If you are ever in a position to pay back your student loan early we would suggest that you shouldn't. For example, you never know what may happen with your job or financial future which may leave you wishing you didn't pay it all back (remember if you earn below £15,000 or £21,000 in 2012 you won't pay back a penny).

Although the debt will be incruing interest (under the current system it is only charged at inflation). It's a type of good debt to have and is only taken out of your pay packet when you can afford it. There is no need to repay in full.

For more information on the loans system in 2012 see student loans 2012.


It is certainly true that parents should be deterred from paying back their children's loans with their savings. It is not a financially sound course of action and money would be far better invested and earning interest rather than simply being paid back to the loan company. However the move would have risked punishing achievement in graduates. Is it fair for a graduate who has enjoyed professional success due to their own hard work to be charged more heavily than someone who has not?

What is your opinion on the decision? Is the abandonment of the policy another move that benefits the rich in society? Or do you agree with the belief that the policy would have punished achievement in graduates? Let us know your views.


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