Prime Minister Theresa May has said the student loan repayment threshold will be increased from £21,000 to £25,000 as part of a wide-ranging review of student finance.

The raising of the threshold – widely trailed in the Sunday papers ahead of the start of the Conservative Party conference – is likely to save many graduates £1,000s.

MoneySavingExpert.com founder Martin Lewis, who has campaigned on the student repayment threshold ever since the Government backtracked on a promise to increase it in line with earnings, said he was "delighted" with the news, though full details of how it will work have yet to be published.

For more on how student finance works, see our Student Loans Mythbusting guide.

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Government to review student finance

The repayment threshold announcement comes as part of a wider review of student finance, with the PM pledging to "look again" at how it works.

Tuition fees will be frozen at the current £9,250 level until 2019, rather than increased with inflation by £250.

And the repayment threshold – the amount graduates can earn before making repayments – will rise from £21,000 to £25,000 next year.

A Department for Education spokesperson has now confirmed to MoneySavingExpert that:

  • The repayment threshold will be increased to £25,000 from April 2018.
  • After that increase it will then be uprated annually "in line with the annual average earnings growth".
  • The threshold increase will apply to those who started university in or after 2012 – not just those who first started repaying their loan from April 2018.

Theresa May said: "We know that the cost of higher education is a worry, which is why we are pledging to help students with an immediate freeze in maximum fee levels and by increasing the amount graduates can earn before they start paying their fees back, amounting to a saving of £360 a year, while the Government looks again at the question of funding and student finance."

'Every single graduate earning over £21,000 will pay less'

Martin Lewis, a former head of the Independent Taskforce on Student Finance Information, said: "While Theresa May's announcement that she'll freeze tuition fees at £9,250 will get the headlines, in practical financial terms it'll have little impact on anyone but the highest earning graduates – as even at current levels most won't repay what they borrowed in full within the 30 years before the debt wipes.

"Far more important is the smaller note that the Government will increase the student loan repayment threshold from £21,000 to £25,000. This will save many lower and middle-earning graduates £1,000s.

"Currently, earn £25,000 and as you repay 9% of everything above £21,000, you repay £360 a year. Increase the threshold to £25,000 and you'll repay nothing. In fact, every single graduate earning over £21,000 a year will pay less.

"And it has a long-term progressive benefit too. As most graduates won't clear their loans in full before they're wiped, by reducing what they repay each year, you reduce what they repay in total too – likely by £1,000s.

"The only losers? The top 23% of graduate earners who would have cleared the loan within 30 years – because, as increasing the threshold means repaying more slowly, it increases their interest (but they can voluntarily overpay so it's no biggie).

"By doing this, it seems the Government has finally, belatedly, learnt from the bloody nose that young people gave it in the last election – which was no surprise, as it had betrayed them by lying to them. It had promised that in April 2017 it would increase the repayment threshold in line with average earnings, then backtracked and froze it – effectively a retrospective hike.

"I campaigned vociferously against that, including writing to the PM, meeting the Chancellor, giving evidence at Parliament and even hiring lawyers to investigate challenging it.

"No surprise then, I'm delighted with this news, though details are sketchy. Yet whether the public will react as positively is open to question. If we are going to keep the current system, this is the right move, but it's far more difficult to understand than lowering tuition fees or interest rates, even though both those would only help very high-earning graduates."

Additional reporting by the Press Association.

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