Three changes to student finance
Three changes to student finance

The Government Has Announced The Biggest Change To Student Finance In A Decade

Three big changes introduced to Student Finance will impact students from this September.

As if students don’t have enough to deal with, the UK government has announced that new university students in England will face three new changes to their student finance.

From September 2023, new students starting university in England will be placed on ‘Plan 5’ loans. These changes will not have any effect on existing students.

This new plan means that new students will potentially pay back double than what they would have compared to the old student finance system.

Three changes to Student Finance

The three new changes to Student Finance will mean new graduates that start university from September 2023 will have to pay back almost double the amount than existing students. This comes as part of three main changes to Student Finance that will take place from this year.

1. Start repaying sooner

Currently, existing students will start making their undergraduate loan repayments once they earn at least £27,295 per year. However, for new students starting in September, the new threshold to start repayments will be lowered, to £25,000 per year. This means you’ll be paying off more each year towards your student loan and most likely from earlier in your career.

According to, the leading graduate job board, the average starting salary for graduates in 2023 is £25,660. This means that many graduates will begin paying back their loans right out of their first pay packet.

2. Paying off for longer

For existing students and graduates, the period to repay student loans is 30 years. Luckily, if you’re a Welsh student, this will remain at 30 years, meaning any debt not paid back after 30 years will be wiped (unless you manage to pay it all off before then).

New students in England will have a longer repayment period of 40 years. Essentially, this means that new students will be paying back their loans for most of their working lives, with the repayments becoming a type of ‘graduate tax’. The debt will still be wiped off after 40 years, no matter how much you’ve repaid.

3. Lower interest rates

As it stands at the moment, student loan interest rates are currently above inflation (RPI +3%). The interest rates for new students will be lowered so it’s in line with inflation. This will mean, in real terms, you won’t be paying any added interest.

According to the Money Saving Expert, the current system for the cost of higher and further education means that the state pays 40p in the pound, while the student pays 56p on average. The new system will see the state paying 19p in the pound, while the student will pay 81p in the pound.

This will mean a 9% graduate tax on earnings above £25,000 per year. It’s believed that 52% of graduates are likely to clear their debts in full (at the moment), but only 23% actually will.

These changes aim to move money out of taxpayers having to fund further education, and making the individual contribute more.

How will this impact graduates?

While the extended repayment period will reduce the bill for taxpayers, graduates may not be that lucky. Martin Lewis, Money Saving Expert, explains:

“Extending this period means the majority of lower and mid-earners will keep paying for many more years, increasing their costs by £1,000s. Yet the highest earners who would clear within the current 30 years won’t be impacted.”

He says to think of the changes as creating a life-long graduate tax — paying back 9% a year once you start earning £25k. If that goes completely over your head, you’re not alone.

For example, if you’re earning £55,000 by the time you’re 30 (lucky you), you’re almost certain to pay off your loan in full. You’re less likely to if you’re earning £25,000, but you’re still likely on average to repay £36,200 of the entire loan, which is thousands more than you’d have done under the old system. Basically, many future lower-to-middle earners will pay back double on the new system compared to what they would’ve done on the old system.

However, Martin Lewis also says that while ‘university may be more expensive, it isn’t a reason not to go if it’s right for you’. On average, graduates earn more than non-graduates, so if you think going to university is for you, don’t let the fees put you off.

Fumbling in the world of Student Finance? Check out what happens if you don’t pay your student loans back in the UK and all the important dates and payments in our Student Maintenance Loans Guide 2023/2024.