A-level results warning: putting off uni until next year could cost £10,000s more
School leavers getting their A-level results this week should be aware that deferring for a year means they'll be on the new student finance system being introduced in England in September 2023, and will repay their loan for a much longer period, potentially costing £10,000s more.
Update: 20 June 2023: MoneySavingExpert.com founder Martin Lewis has written a detailed new guide explaining the huge changes to the English student finance system for those starting university this September (and their families).
See Martin's Six need-to-knows about ‘Plan 5’ English student finance.
So if you're getting your A-level results in England on Thursday and either decide to defer your uni entry by a year, or don't get the A-level results for your preferred university and opt not to go via Clearing, be aware that reapplying for 2023 could cost you more in the long run.
Graduates with lower to middling earnings, for example, will pay back an additional £30,000 under the new system than they would currently, according to calculations from the Institute for Fiscal Studies.
We explain what's changing below, but you can also read our Student loans guide for more information.
At the time of the announcement on student finance changes (in February 2022), MoneySavingExpert.com founder Martin Lewis said:
"The plans will see most university leavers pay far more for their degrees over their lifetime than they do now. It effectively completes the transformation of student 'loans', for most, into a working-life-long graduate tax.
"The decision to extend repayments to 40 years, combined with the other measures, will leave most who start university straight after school still repaying it into their 60s."
Martin added: "So to anyone who finishes school this year and plans on taking a gap year to start in 2023, it's worth having a think. For most, starting this year will save you thousands of pounds over your working life compared to delaying."
What's changing with student loans from 2023
The announced reforms will impact future students who are from and live in England, regardless of where in the UK they study.
It is not yet clear if the changes will affect prospective students in Wales, as the Welsh Government is yet to to decide on arrangements for 2023. But if you live in Scotland or Northern Ireland, the reforms won't affect you, as different student finance plans are in place there.
The key changes in England are as follows:
- The repayment threshold is being lowered from £27,295 to £25,000. You'll be charged 9% of whatever you earn above £25,000, meaning you'll start repaying your student loan sooner. For example, under the new system, a graduate with a salary of £30,000 would pay off £450 of their student loan every year. While under the current system, a graduate earning the same amount would pay off £243.
- The loan will be wiped after 40 years instead of 30. As well as making larger contributions, many graduates will also have to make them for a longer period.
- Interest on 2023 student loans will go up in line with the Retail Prices Index (RPI) rather than RPI +3%. This is good news as it means there's no 'real cost' to your student loan, as the rate is set at inflation. So say you borrow enough to buy 100 shopping trolleys' worth of goods, you'll only repay enough to buy 100 shopping trolleys' worth of goods at future prices.
The shake-up means many more students will pay off their loans in full, rising from about 23% under the current system to 52% under the new one, according to the Government. While this is a good thing for future higher-earners, who'll pay off their loan more quickly and therefore pay less in interest, the bulk of people will face higher repayment costs over their working lives.
The graphic below, taken from Martin's ITV student finance special on 24 February 2022, compares the key student finance terms for those starting university in England in 2022 versus those starting in 2023 – watch the full episode to hear more on the exact impact of the changes.
Don't think of student loans as a 'debt'
While the shake-up means university will become more expensive for some, it's important not to think of a student loan as 'debt'. As with the current system, you only ever make repayments if you earn enough after you leave uni, and the amount you have left to pay doesn't ever go on your credit file (like a normal bank loan would).
So it's better to think of your loan repayments as a graduate tax, albeit one that's substantially increasing for many from 2023.
Check how much you'll need on top of your loan to cover living costs
Students in the UK can also get a loan to help cover their living costs (as with the tuition fee loan, this is only repaid if you earn enough once you leave). However, the size of this living loan is based on your family's income, so some students get less from the Government than others.
Parents of students in England, Scotland and Northern Ireland who don't qualify for the maximum help are expected to fill the gap. But this parental contribution isn't made clear, so we've created a new calculator to show how much the Government expects you to give your child each year they're at uni.