Martin Lewis: ‘Costs of university to rise 50% for many students from 2023’

He said: “The scale of change in September 2023 seems to have slipped under the radar. It will be the biggest shift in student finance for a decade, as new Plan 5 loans launch for new higher-education starters from England. Paradoxically, the changes are both subtle and massive. On the surface it looks like a tweak, in practice it will increase the cost by over 50% for many typical graduates and double it for a few.”

There is a summary of his key points below, and for more explanation, see the full new guide at: https://www.moneysavingexpert.com/students/student-loans-england-plan-5/

Why new English students who start from 2023 will pay so much more

Those earning over the current threshold will repay £207 a year more, and they’ll repay for up to an extra decade, as this table shows...

Martin’s five need-to-knows for new 2023 starters and their families
[Please only reproduce parts of this if you will link to the full guide for a detailed explanation]

1. The student loan price tag can be £60,000, but that’s NOT the cost. Tuition fees are capped at £9,250 a year (£9,000 in Wales), so for most, over a typical three-year course, the combined full loan for tuition and living costs can be £60,000+. But what really counts is what students repay: 

• They only need to repay once they earn £25,000 a year (and that threshold is frozen until 2027). Earn less and they don’t pay anything back.
• They repay 9% of everything earned above that, so earn more and repay more each month.
• The loan is wiped after 40 years – whether they’ve paid a penny or not.
• It’s repaid through payroll, just like tax, and isn’t reported on credit files.

2. There is a somewhat hidden, official parental contribution to living costs. Students can also get a loan to help with living costs – known as the maintenance loan. For most under-25s, their living loan is dependent on family residual income, which for most people is a proxy for ‘parental income’.

The loan received starts to be reduced from a family income of just £25,000 upwards, until around £60,000 to £70,000, where it’s roughly halved. This missing amount is effectively an unsaid parental contribution. MSE’s Parental Contribution Calculator (https://www.moneysavingexpert.com/LivingLoanCalc) can estimate the cost. Even though parents can’t be forced to fill the gap, it’s crucial to have a discussion on it and understand there is a gap.
 
3. The amount students borrow isn’t the primary factor in what they repay, as Plan 5 loans work more like a graduate tax. What they will repay each year depends solely on what they earn, not the amount they owe. For example, let’s take a graduate earning £35,000 a year:

- On a £20,000 loan, they’d repay £900 a year
- On a £50,000 loan, they’d repay £900 a year
- On a £3 million loan (if tuition fees were ridiculously increased to £1 million), they’d repay £900 a year

In fact, what the amount of borrowing impacts is whether they’ll clear what’s borrowed within the 40 years before it wipes or not. In practice, the majority will likely be paying this for well over 30 years, and 46% for the full 40 years. So for all but the highest earners, it will feel more like a 9% extra tax above the threshold for most of their working life than a loan.

4. Interest is added, but there’s no ‘real’ cost to it, and not everyone pays it. The one positive change for new 2023 starters is there’s a cut in the interest rate, which will be set at just the Retail Prices Index (RPI) rather than the current RPI + 3%. Sadly, that’s likely to be very high this year.

So in economic theory, as the interest is set at inflation, there’s no ‘real’ cost to the loan, as borrow 100 shopping trolleys’ worth of cash, and you only have to pay whatever 100 shopping trolleys cost in the future – your purchasing power isn’t diminished. Though the fact the Government uses the higher RPI rather than the Consumer Prices Index rate skews that somewhat.

Critically though, the interest added isn’t the same as the interest repaid for many students. Only those who clear the loans in full in the 40 years pay all the interest – many lower earners will pay less, and some will pay none.

5. The system can, and has before, changed. Student loans are sadly not locked into the law, and the repayment threshold should be seen as ‘variable’ as it can be changed at the whim of administrations. Yet the fact this new system only impacts new starters suggests that further big structural changes, especially for those already at university, are unlikely, though not impossible.

-ends- 

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Notes to editors:

• Visit MSE’s student hub for all of MSE’s guides and tools to help students save money while studying. 
• See MSE’s guide for full details of MSE’s campaign to redesign student loan statements. 
• See MSE’s explanation of how much should you contribute to your child’s student maintenance loan – including, MSE’s Parental contribution calculator, for those with kids already at university and for those whose children are not at university yet (but plan to go in the future) MSE’s How much should you save for your child to go to university calculator.
• For self-employed workers (or those who plan to be after graduating), see Martin’s warning to freelancers and the self-employed.
• See MSE’s guide for more on student loans and their impact on credit files.
• See MSE’s guide for whether someone’s student loans will impact their ability to get a mortgage. 
• Sign up to the free MSE weekly email for any important student loan updates.

About Martin Lewis: Martin Lewis CBE, Money Saving Expert, is the journalist and consumer campaigner who created MoneySavingExpert.com and is now the site’s Executive Chair. Martin also founded and chairs the Money and Mental Health Policy Institute charity. He’s regularly been named the UK’s most-googled man, Citizens Advice’s Consumer Champion of the Year, and has spearheaded major financial justice campaigns including bank charges reclaiming (over seven million template letters downloaded), PPI reclaiming (over six million), successfully taking on Facebook to reduce the number of scam ads, and ran a successful large-scale campaign to get financial education in schools – including personally funding over 300,000 textbooks. In 2020, he also set up the Coronavirus Poverty Fund, funding over £3m to 400+ UK charities. He has his own weekly award-winning prime-time ITV programme, The Martin Lewis Money Show LIVE, as well as a range of other regular media slots. 

About MoneySavingExpert.com: MoneySavingExpert.com is dedicated to cutting consumers’ bills and fighting their corner. The free-to-use consumer finance help resource aims to show people how to save money on anything and everything, and campaigns for financial justice. It was set up in 2003 for just £100, and its free-to-use, ethical stance quickly made it the UK’s biggest independent money website, according to internet ranking site Alexa.com, and the number one ‘Business and Finance – Business Information’ site, according to Hitwise. It has more than 9 million people opted-in to receive the weekly MSE’s Money Tips email, and 10.3 million unique monthly site users who visit 20 million times a month, including the MSE Forum, which has more than two million registered users. In September 2012, it joined the MoneySupermarket.com Group PLC.