Blog

Changes to Student Loan Repayments in 2023

• May 10, 2023

In an announcement that has caught the attention of students and graduates across England, Martin Lewis revealed on Good Morning Britain that student loan costs will double for many starting from September 2023. This change applies specifically to new students, while those currently enrolled in universities will continue with the existing Plan 2 loans, however for new starts in September the way in which you’ll repay your student loan will be changing in 3 big ways. Under the new Plan 5 loans, there are significant changes that incoming English students need to be aware of.

The first change involves a reduction in the repayment threshold, which will drop from £27,295 to £25,000. Consequently, graduates will begin repaying their loans at an earlier stage, leading to higher annual repayments. For instance, individuals earning £30,000 will be expected to pay £450 per year under the new system, as opposed to £243 under the previous arrangement, according to Regent College London.

Another concerning change revolves around the extended duration of loan repayments. In the previous Plan 2 system, graduates were given 30 years to settle their outstanding balances. However, under the new system, this period has been stretched to 40 years. While this may initially seem like a benefit, it effectively means that borrowers will be burdened with student loan debt for a significantly longer time. Notably, projections suggest that 52% of students starting in 2023 will likely achieve this, in contrast to only 23% of those who commenced their studies in 2022.

Finally, the interest rates on student loans are tied to inflation. This means that borrowers will not repay more than the amount they initially borrowed in real terms. The interest charged on the loan, which begins accruing from the day it is received, aligns with the Retail Price Index (RPI), a measure of inflation that tracks the cost of everyday items. This ensures that if you borrow an amount equivalent to purchasing 100 shopping trolleys' worth of goods at present prices, you will only repay an amount sufficient to purchase the same 100 shopping trolleys at future prices.

The changes to student loan repayments in 2023 have sparked widespread discussion and concern among current and future students in England. As these modifications take effect, it is important for students to understand the implications they may have on their financial future.