A plan to impose penalties on students who pay university loans back early has been scrapped by the government, amid fears hundreds of thousands of people would be hit with unfair charges. Ministers were considering levying annual charges of about 5% on excess payments to prevent wealthier students escaping interest charges on 30-year repayment plans. The cancelling of the plans is widely seen as a concession to Tory backbenchers over the decision of business secretary Vince Cable to appoint Les Ebdon, vice-chancellor of the University of Bedfordshire, as the new director of OFFA. Mr Cable had championed the early redemption charges because he feared poorer students would end up paying more than those wealthier students able to pay off fees early – with the latter avoiding interest repayments of around £12,000 over their lifetime. Consultation on the plans, which drew criticism for imposing further burdens on already financially-squeezed middle classes, closed earlier this year. A Downing Street spokesman confirmed reports that the repayment penalties plan was now “dead in the water", and that ministers are expected to formally announce the plans have been dropped sometime next week.
From September, students will be able to take out loans to cover their annual tuition fees bill of up to £9,000, as well as their living costs and will only begin to repay the loans once they earn more than £21,000 a year, with any outstanding balance being written off after 30 years. The Guardian definitely provides some interesting graphics which show the reality of the new loan repayment system.