Student debt could cause 'tax crisis' for university leavers, union claims
Graduates are facing a "mid-life tax crisis" due to student debt, a union has warned.
High-earning graduates could find themselves paying the equivalent of 51p in the pound into the public purse by the time they hit their 30s and 40s through tax, National Insurance (NI) contributions and loan repayments, according to a new report published by the University and College Union (UCU).
It argued that there are "no winners" under the current student funding system, with many university leavers saddled with debt at a time when they are trying to buy homes or starting families.
The findings come amid a growing debate on the future of tuition fees, sparked by a Labour General Election pledge to scrap the charges.
Ministers have argued the current funding system is fair and sustainable and is allowing more people from disadvantaged backgrounds to go to university than ever before.
Under the current system, students pay up to £9,250 a year in tuition fees and can get government loans to cover the costs.
Graduates begin paying back the money once they are earning over £21,000 - paying 9% of their income above this amount. Interest on tuition fee loans will stand at around 6.1% from this autumn.
The London Economics report, published by UCU, calculates that many graduates will have effective tax rates of around 50% during their 30s and 40s.
It suggests, for example, a male engineering graduate will face a marginal tax rate of 51% from the ages of 33 through to 47.
That means on earnings greater than £45,000 - which fall into a higher tax bracket - he will have the equivalent of 51p per pound deducted from his salary in tax, NI contributions and loan repayments.
Other male graduates which face paying around 51% include those working as lawyers, doctors, social workers and IT professionals, it says.
The figures were calculated through estimating average earnings by occupation, age and gender, taking into account factors such as the probability of being in work and average earnings growth rates.
UCU general secretary Sally Hunt said: "Graduates are facing a mid-life tax crisis. Politicians who defend the status quo as progressive simply do not understand the current system.
"Recent changes that have increased interest rates, removed maintenance grants and lowered the real-term salary at which repayments begin have made a convoluted and unfair set-up even worse. The time has come for a complete change."
She added: " This report exposes how there are no winners under the current student loan system, just different ways to lose.
"As some better-paid graduates reach their 30s and 40s they will be hit with marginal tax rates of 51%.
"Meanwhile men on lower salaries working in our public services like teachers, nurses and social workers will never pay their debt off fully and will end up paying more money back in total.
"That money should be going into saving for retirement, towards a mortgage or even starting a family. This generation of graduates sees debt rack up from their first day of university and some will never pay it off."
Universities minister Jo Johnson said: "Our higher education system ensures that graduates only start paying back their loans when they are earning over £21,000. Unlike commercial alternatives, student loans are available to everyone, regardless of background or financial history.
"This approach ensures that costs are split fairly between graduates and the taxpayer, and does this while helping more young people from disadvantaged backgrounds go to university than ever before - up 43% since 2009."