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The lasting impact of student loan reforms

Could reforms to student loan repayments make women rethink their investments in higher education? Jill Rubery investigates.

The most significant changes to the student loan system, since it was first introduced in 2012, propose extending the period before loans are written off from 30 to 40 years. This will disadvantage all lower earning graduates, but particularly women as they are both concentrated in this group and continue to face pressures to backpedal on their careers in their 30s due to the duties of parenting.

Under the current system when women are finally able to reboot their careers they may still face ten or more years of paying back their loans, but they can at least look forward in their 50s and 60s to repairing part of the financial damage - to both earnings and pension funds – that they suffered during their 30s.

However now they face a 9% tax on earnings above the announced lower threshold of £25,000 until they are into their 60s. To put this in perspective, while the promised one pence cut in income tax in 2024 would benefit a teacher earning around £35,000 by £225 per annum, each extra year paying back the loan would cost them £900.

Interest on the loan, already accumulating during their years of low earnings and childcare, will also stack up for an extra ten years. And backloaded repayment of loans is costly and adds to the problems that women face in pension benefits if unable to invest in pension funds early in the employment life course.


Could these reforms make women rethink their investments in education that have been outstripping those of men for many years?

Women already face a perfect storm of very high childcare costs in the UK, as well as effective exclusion from many high paid graduate jobs due to long and variable working hours that are incompatible with parenting. We have also seen the erosion of real earnings in female-dominated public sector graduate jobs due to austerity measures since the financial crisis.

Under the student loan reforms, interest on graduate loans from now on will increase in line with the retail price index (RPI). However, this change to interest rates will mainly benefit high earners, mostly men, who were the only ones liable to rates above RPI. Overall, under the reforms announced in March, female graduates are set on average to pay £11,600 more towards paying off their loans while male graduates on average would pay £3,800 less. Men will also benefit most from a further change announced in June that placed a cap on interest at 7.3% after accelerating inflation raised the prospect of 12% rates in the short term.

Under these conditions it must be sensible to ask if higher education is worth it, at least financially.


Most economic estimates of the benefits of higher education to women suggest that they do benefit, either equally or more than men, from a degree.

For example, an IFS study estimated that the net lifetime benefit for men and women was relatively similar – at £130,000 for men and £100,000 for women - despite flat earnings curves for women graduates after 30 and steeply rising earnings for men to age 40 and beyond.

For both men and women a degree increased net earnings by 20% but from very different starting points. In fact, women have to invest in an undergraduate education simply to bring up their earnings profiles to just above those of men without a degree.

Of course, gender differences for both graduates and non-graduates reflect women’s tendency to take on primary responsibility for children, but in doing so they not only support their partners’ careers but also enable employers to avoid the need to offer family-friendly working to all parents.

Low graduate earnings

The low earnings profiles for women graduates lead to them being treated both statistically, and in the public discourse, as low productivity workers who cost the public purse more by paying lower taxes and leaving unpaid student loan debts. But why it is that women have so much lower earnings profiles than men?

There are two main reasons. The first is the absence of policies to promote more equal shared parenting. The second is the actual jobs that women do, and in particular their tendency to fill many public sector jobs that require a degree in order to practice, such as teaching and nursing.

The government gets a huge windfall from staffing its hospitals and schools at wages below the going rate for male graduates, but is now asking women to pay a 9% premium (on earnings above £25,000) almost all the way through until retirement just for the privilege of working in these professions.

For instance, nurses earn so little that even after 40 years the loan is unlikely to be fully repaid, but the government prefers to try to alleviate its huge staffing shortage through cash grants to trainees rather than by raising pay for all nurses.

Is it still worth it?

So, is it still worthwhile for women to invest in a university education? The short answer is probably yes, even when only considering the monetary rewards, just to achieve similar earnings as non-graduate men.

When it was introduced the student loan system was championed over a graduate tax on the grounds that there would be no lifetime commitment. That promise now is mainly restricted to men and some high-flying women.

Instead, women are now being asked to take on the task of reducing student loan debt to add to the costs they already incur from their childcare responsibilities and commitments to public service professions.

Blog posts give the views of the author, and are not necessarily those of Alliance Manchester Business School and The University of Manchester.

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