Student finance in England is getting a huge overhaul. Here are three major changes that will affect students starting university in September 2023.
The new changes to the system introduced by the government in the form of new ‘Plan 5’ loans will make student finance significantly more expensive in England. Current students and graduates will not be affected.
The amount most graduates will repay over their lifetimes on the new Plan 5 student loans will be around double of those with Plan 2 loans.
If you’re heading to university this summer, here are three major student finance changes you should know about.
Read more: Complete guide to student finance: the 2023 deadline and how to apply
1. Student loan repayment threshold will fall
Currently, under Plan 2 student loans, graduates repay 9% of their income above £27,295.
Under the new Plan 5 loans, which come into effect for students starting in September, they will start making loan repayments at a lower threshold of £25,000.
For example:
- A graduate with a Plan 2 student loan earning £30,000 annually makes £243.45 each year in repayments
- But a graduate earning the same with a new Plan 5 loan would repay £450 each year instead
Read more: How does the student loan repayment threshold work?
2. Student finance repayment changes for graduates
Most students don’t pay off their student loans. Instead any outstanding debt is written off after a number of years.
One significant change for new students will see them making loan repayments for an extra ten years.
As it stands, graduates with Plan 2 loans have their student debt written off after 30 years. The 30-year clock starts ticking from April after they graduate.
However, graduates with the new Plan 5 loans will see this repayment period extended to 40 years.
So if, for example, you graduated at the age of 21 with a Plan 2 loan, your loan would be written off at the age of 51.
But if you graduated at the same age with a Plan 5 loan, your loan would be written off at 61 instead. This means that new students will be making repayments for nearly all of their working lives.
Read more: Highest-paying graduate jobs in the UK
3. The annual interest rate will fall
Currently, graduates with Plan 2 loans are charged annual interest based on the retail prices index (RPI), a measure of inflation, plus an extra 3%.
However, for new Plan 5 loans, the interest rate will just be based on RPI, removing the extra 3% charge.
This means that Plan 5 loans will be cheaper than Plan 2.
Read more: What the latest interest rate rises mean for you
Is it still worth going to university?
The new changes to student finance coming into effect in September will mean you may think more carefully about the value of a university degree.
Student loan repayments are a sort of graduate tax. It’s an extra cost most graduates will pay for nearly all of their working lives in exchange for a university degree.
For many, the value a degree will add to their earning potential down the road makes the cost of student loan repayments worth it.
Read more: Best student bank accounts
However, with the new lower repayment threshold and longer 40-year term, it’s worth calculating just how much you could be repaying earning different salaries to ensure it’s worth it to you.
Find out more about if a degree is worth it, plus the top graduate salaries. If maximising your earning potential is a priority for you, see the UK’s highest-paying jobs.
Starting university soon? See our ten student money tips, plus a checklist for preparing for your first year.
