Plan 5 student loans

Plan 5 student loans

What English students starting uni in 2023 need to know

The biggest change to English student finance in a decade is about to happen. New students starting this September will be put on 'Plan 5' loans. This will lead to many paying back DOUBLE what they would've done on the old system, though others will save £1,000s. There are 14 key need-to-knows if you, or someone in your family, is applying for student finance.

Is this the right guide for you? If you’re not an English student starting university from September 2023 onwards, you're on a different system – see our other student loans mythbuster guide for more help.

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Before we go through item-by-item, MSE Founder Martin Lewis has prepared a handy graphic from his ITV show to summarise the key changes, here it is:

And here's his big picture summary of what this means:

“Most new English starters will pay far more for their degrees over their lifetime than their predecessors. The decision to extend repayments to 40 years, combined with the other measures, will leave many who start university straight after school still repaying it into their 60s.

"Since 1991, the cost of further and higher education has been effectively split between the individual and the state. These changes swing the pendulum further towards the individual. The Government's own data shows the state's contribution will drop from 44p in the pound to 19p under the new system, meaning the individual pays more, the state less. 

"In effect these changes effectively complete the transformation of student 'loans', for most, into a working-life-long graduate tax for those who earn enough to pay it. The vast majority of those who go to university will pay the equivalent of 9% extra tax above a threshold, for up to forty years to pay for their education. 

"Sadly though, the Government has ignored my suggestion, supported in spirit by the report behind these changes, that if it’s going to make these changes, to at least be transparent and call this what it is: a 'graduate contribution system' – as it works far more like that than a loan.

"However as daunting as what I’ve written is, the fact University may be more expensive, isn’t a reason not to go if it’s right for you. University isn’t just about the finances. There are many other gains – life-changing for some – and, on average, graduates do earn more than non graduates, so there is a balance to be had.

"Yet the increase in likely cost for many is certainly a reason for you to understand how the finances work, and to examine whether University is the right choice (or could an apprenticeship or another option be better?)."

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  1. You DON'T have to pay a penny upfront (but parents ARE expected to contribute to your uni living costs)

    While there are downsides to student loans that you should weigh up – and hopefully this guide will help you do that – one upside is you don't need to pay anything upfront to go to university. So no one should be put off from going because they think they can't afford it (though you may be put off by the long-term financial commitment).

    You can get a student loan to cover both your tuitions fees (see point 6) and your student living costs (called a maintenance loan), though the latter is means-tested with parents expected to fill any shortfall (see point 7.) You'll only start repaying these loans after you graduate and, even then, only once you're earning enough.

  2. It's not the size of the loan, but what you repay that counts


    While you don't have to pay for it upfront, there's no escaping the fact university is expensive. Many students will graduate having borrowed roughly £60,000. That's a huge sum of money, and many parents and students worry about how they'll ever repay such a large 'debt'. But that's the wrong way of thinking about it for two reasons:

    Reason 1: It isn't a debt, it's a 'graduate contribution'

    Calling it a student loan is misleading because it implies that by taking it, you're getting into debt. But that isn't really the case, because the student loan doesn't work like any other type of debt. In fact, it works more like a tax because:

    • You only repay it if you earn over a certain amount – see point 3.
    • The loan gets wiped towards the end of your working life – see point 4.
    • It's repaid through the income tax system – see point 10.
    • It does not go on credit files – see point 12.
    • It doesn't prevent you from getting a mortgage – see point 13.
    • Many people will continue to repay for most of their working life, because...

    Reason 2:  You might not ever have to repay the 'loan' in full

    The price tag of university is mostly irrelevant. What matters in practical terms is how much you have to repay – and that can be a completely separate number from the total amount of tuition fees, maintenance loan and interest.

    An estimated 52% of 2023 starters are likely to repay their loan in full, while 48% will never pay back the full amount. Which group you're in depends on how much you go on to earn in your career. If you end up being a higher earner, you'll probably pay it off, but lower-earners might not.

    The table below shows how likely you are to repay in full, based on your salary at age 30. These rough projections assume you're borrowing £9,250 for tuition fees and £9,706 for your living costs for each year of a three-year course, so £56,868 in total.

    How likely 2023 starters are to repay their student loan

    Salary at age 30 Proportion likely to repay loan in full Average amount repaid
    £15,000 35% £29,300
    £20,000 40% £34,300
    £25,000 40% £36,200
    £30,000 55% £43,300
    £35,000 70% £48,700
    £40,000 80% £51,100
    £45,000 85% £53,100
    £50,000 90% £54,500
    £55,000 95% £55,100
    £60,000 95% £54,900
    £65,000 95% £55,300
    £70,000 95% £55,100

    Source: IFS, October 2022

    So, if you're earning £55,000 by the time you're 30, 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 loan, which is £1,000s more than you'd have done under the old system. In fact, 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.

    Of course, in reality, most students have no idea how much they're likely to earn when they leave uni, let alone by the time they're 30. So, rather than second guess, it's better to think of your student loan repayments as a graduate 'tax' – once you're earning enough, a contribution will come out of your payslip for most of your working life.

  3. You won't pay anything back until you're earning over the 'repayment threshold' – currently £25,000

    You only start making student loan repayments once you're deemed to be earning enough to be able to afford it. Under the old Plan 2 system, for example, you'd have had to repay 9% of everything you earned above £27,295. So with a salary of £27,000, for example, you wouldn't have had to pay back anything.

    But what the Government deems you can afford has changed under the new Plan 5 system. Now, you repay 9% of earnings above £25,000. So you'll start paying off your loan earlier into your career, and your repayments will be up to £207/year higher than they'd have been on the old system. For instance, a salary of £35,000 means you'd repay £900/year on the new system, compared with £693/year on the old one.

    The table below shows how much you can expect to repay on Plan 5. As you can see, the bigger your salary, the higher your repayments will be:

    What you'll repay on a Plan 5 student loan

    Salary What you'll repay each year
    £20,000 £0
    £30,000 £450
    £40,000 £1,350
    £50,000 £2,250
    £60,000 £3,150
    £70,000 £4,050
    £80,000 £4,950
    £90,000 £5,850
    £100,000 £6,750

    This is where it gets technical but it's important to understand. The repayment threshold has been frozen at £25,000 until April 2027. It'll then increase each year, in line with the Retail Price Index (RPI), which is a measure of inflation.

    Over the long-term, it's predicted that average earnings will grow substantially faster than RPI. So, as earnings grow over time, more and more graduates will begin to earn above the repayment threshold and therefore start paying back their Plan 5 loan.

  4. The loan is wiped after 40 years

    Under the new system, you'll keep making student loan repayments until you either clear your balance, or until 40 years have passed, whichever's first. (The loan's also wiped if you die or are disabled in a way that prevents you from working again).

    Extending the repayment period to 40 years (from 30 under the old Plan 2 system) means you're much more likely to repay your loan in full. In fact, 52% of 2023 starters are now likely to do this, compared with only 23% of 2022 starters.

    And while lower earners are still unlikely to clear their loans in full, they'll repay more over 40 years than they would've done in 30 (assuming they earn over the repayment threshold), meaning their university education will have cost them far more.

    The bottom line: the extra decade means students earning £25,000+ will either repay their loan in full, or be paying it off for almost all their working lives.

  5. Interest rates are set to inflation, so you won't repay more than you borrowed (in real terms)


    While you'll be paying off your loan for longer under the new Plan 5 system, the good news (for some) is that the cost of your loan won't be going up in 'real' terms.

    That's because the interest rate (which is charged from the day you receive the loan) matches the Retail Price Index (RPI) – a measure of inflation that tracks the cost of everyday items. So, borrow enough to buy 100 shopping trolleys' worth of goods at today's prices, and you only repay enough to buy the same 100 shopping trolleys' worth of goods at future prices.

    That may not sound great given how (unusually) high inflation is right now, but it's better than the old system, where interest of up to RPI plus 3% is charged. Whether or not the lower interest on the new system benefits you, though, is another question. 

    If, after you graduate, you never earn above the repayment threshold (currently £25,000 per year), interest rates are meaningless – as although the cost of your loan will be rising in line with RPI, you'll never have to repay it and it'll be wiped after 40 years.

    If you earn a bit more – say above the £25,000 threshold but at the lower to middle end of the earnings range – you’re likely to be paying off your loan for the full 40 years, though you won’t repay it before it’s wiped, so the interest rate is similarly meaningless. 

    If, however, you end up being at the middle to higher end of the earnings range after leaving university, this change means you'll pay £1,000s less in interest and pay off your loan more quickly than you'd have done under the old system.

  6. Tuition fees won't rise above £9,250 until 2025/26 at the earliest

    As the name suggests, tuition fees cover your tuition while you're at university. In other words, it's what your university charges you to be there.

    There's a cap on how much universities can charge for this. If you're an English student studying in England, Scotland or Northern Ireland, it's £9,250, while it's £9,000 if in Wales. These caps have been frozen until at least the 2025/26 academic year.

    Most UK universities charge at (or close to) the max, so tuition fees are likely to cost you at least £27,000 for a three-year course. If you take out a student loan to cover this, the Student Loans Company will pay the money directly to your uni.

  7. You can also take a loan to cover your student living costs, but beware the hidden parental contribution


    Tuition fees aren't the only expense you have to worry about at uni, you also need to pay for your living costs while you're there – from food and accommodation to textbooks and travel. To cover these, full-time students can take out what's called a maintenance loan, which gets paid into your bank account each term.

    You pay it back in exactly the same way as your tuition fee loan – it's all seen as part of the same student loan. But there's a CRUCIAL difference between the two. While your tuition fee loan covers your fees in full, your maintenance loan (or living loan as it's also known) is unlikely to cover all your living costs. There are two reasons for this:

    Reason 1: The living loan is MEANS-TEASTED, so how much you get depends on household income

    For practically every student under the age of 25, this means test is based on your parents' income. Or, if you're 25 or over, on your partner's income (if you have one). Either way, the higher your household income, the less the Government will loan you for your living costs.

    The amount you get also varies depending on if you have other financially dependent children in your household, and if you're eligible for benefits, as well as where you live while you're at uni. If you live at home, for example, you'll get far less than if you live away from home in London.

    The table below shows the minimum and maximum living loan amounts for 2023/24. You'll only get the max if your annual household income is £25,000 or less. If yours is higher than that, your loan amount will decrease as your household income increases.

    Minimum and maximum maintenance loan amounts for 2023/24

    Where you'll be living at uni

    Minimum maintenance loan per year

    Maximum maintenance loan per year (4)

    Living at home

    £3,698 (1)


    Living away from home (not in London)

    £4,651 (2)


    Living away from home (in London)

    £6,485 (3)


    (1) You'll get this if your household income is £56,910/year or more.
    (2) You'll get this if your household income is £60,836/year or more.
    (3) You'll get this if your household income is £67,422/year or more.
    (4) You'll get this if you're household is £25,000 or less.

    As you can see, there's a huge difference between the maximum and minimum amounts. This is the HIDDEN PARENTAL CONTRIBUTION.

    Many parents don't realise that if their child's due to get less than the maximums listed above, the Government expects THEM to fill the gap. For example, if your household income means your child will get the minimum loan of £6,485/year (when living away from home in London), you're expected to give them £6,537/year to make up the shortfall.

    We've campaigned hard for the Government to make it clearer that parents need to make this contribution. And while it is now clearer than it was, it's still not as explicit as we'd like. That's why we've built a calculator to show you exactly how much you'll need to contribute. Use our...

    Parental contribution calculator

    Of course, knowing what the parental contribution is doesn't mean parents can afford to pay it. But it does at least show you what amount is expected, and helps students and parents have an honest conversation about it.

    For more on the parental contribution, read Martin's detailed briefing.

    Family income dropped in the last two years? You could be due extra help

    Your maintenance loan entitlement is usually based on the tax year two years prior to the year you apply. But if you think your family income in for the 2022/23 tax year will be at least 15% lower than it was in the 2021/22 tax year, you may be able to get more maintenance support by applying for something called a current year income (CYI) assessment.

    Reason 2: The living loan amount HASN'T increased in line with inflation

    Even if you're due to get the maximum possible maintenance loan, the chances are it sadly still won't be enough to cover your full living costs during the academic year.

    That's because the loan amount hasn't increased as quickly as inflation, so you're getting less in 'real terms'. For the 2023/24 academic year, for example, the living loan amount is going up by just 2.8%, despite inflation running at more than 10%. According to the National Union of Students (NUS), this will leave students over £1,500 worse off than they'd have been had the living loan increased in line with inflation.

    So, in addition to any expected parental contribution, many parents may feel the need to dig even deeper into their pockets to help their child make ends meet at uni. Getting a part-time job will also be an option many students will be forced to consider.

    See our Student MoneySaving tips for more on how to make the cash stretch further.

    Quick questions

    • I'm disabled – can I get extra help?

      Disabled students can get extra help in the form of a disabled student allowance (DSA), to help cover costs you have due to a mental health problem, long-term illness or another disability. This is on top of your other student finance and you don't need to pay it back. How much you get depends on your individual needs – it is not means-tested. 

      The maximum disabled student allowance for 2023/24 is £26,291. This is the max, so you'll likely get less than this (and part-time students will get pro rata amounts). But as students don't get enough to cover living costs as it is, the DSA can be a great extra help, so it's worth applying if you're eligible.

      The funding is usually paid directly to suppliers who provide the recommended support – whether it’s taxi companies, computers or software, ergonomic equipment, or non-medical helpers, such as mentors or specialist tutors. It's not usually given as a cash allowance to the student.

      The DSA Assessment process involves finding a centre and attending an assessment. The process can take several months and should ideally be done before starting university. You can apply for a DSA even if you're not sure which university you're going to.

    • I am independent from my parents, will I still be assessed based on my parents' income?

      You can apply for independent status, meaning your parents' incomes won't be taken into consideration, as long as you meet at least one of the following criteria:

      • You're estranged from your parents – you've not had verbal or written contact with them for over a year, and your relationship won't improve in the foreseeable future.

      • You've supported yourself for at least 36 months (three years) before your course starts. Those months don't have to be consecutive, but you'll need to show evidence you earned enough to support yourself financially.

      • Since the age of 16, you've been in local authority care for at least three months, and you're estranged from your parents and this won't improve.

      • If you don't know where your parents are, or it could be dangerous to contact them, or if your parent has a significant mental health or physical health issue that makes it impractical or dangerous for you to contact them.

      • If you're at least 25 years old on the first day of your course, or you're married or in a civil partnership or have been before but are now separated, or you have a child or dependent, or both of your parents have passed away.

      You will need to provide evidence with your application, so make sure you read the charity Stand Alone's guidance carefully to avoid the risk of being rejected.

  8. Apply by 19 May (though this is a soft deadline so don't panic if you miss it)


    If you're applying for a Plan 5 student loan for the 2023/24 academic year, aim to get your application in by 19 May at the latest. This is the last date at which the Student Loan Company guarantees you'll receive your loan in time for the start of term.

    You can apply before you have a confirmed university offer, and if you later decide not to go to uni this year after all, you can cancel your application, so there's no excuse for not applying by the deadline.

    That said, if you do miss it, don't panic. You can apply for a loan for the 2023/24 academic year right up until the end of May 2024, but the later you apply, the later you'll receive the money, which may make budgeting difficult.

    See our student budgeting guide for tips on managing your money while at uni.

  9. If you DO decide to refuse the loan and pay upfront, you could be left £10,000s worse off

    Many parents worry about the impact that taking out such a large student loan will have on their child during their working lives, so they decide to fork out the money themselves. But even if you can afford to do that, it can be very bad financial logic.

    That's because a student loan is actually the 'best' form of debt you'll ever take (so much so that we don't think it should be called a debt). There's no interest charged in real terms and the loan only ever gets repaid if you're earning enough to be able to afford it.

    Consider this hypothetical example:

    Michael wants to study chemistry. His parents don't want him getting into 'debt' so they pay £28,000 out of their own pockets to cover his tuition fees, and give him a further £30,000 to pay for his living costs while he's studying.

    After graduating, Michael decides to go overseas and do charity work for several years. While he earns enough from this to fund his everyday costs, he never gets near the £25,000 repayment threshold. When he returns, he settles down, starts a family and becomes a full-time parent.

    So, his parents paid £58,000 for nothing because, had Michael taken out the student loan instead, he wouldn't have had to repay a penny. His parents would have been far better off saving that money to help Michael get on the property ladder.

    In other words, paying for uni upfront is a waste unless you're certain you'll earn enough in future to pay off the loan in full – which a little over half of graduates will do.

    Not convinced? Consider Martin's 'halfway house' option

    If you're still considering refusing the loan and spending your own cash to pay for uni upfront, watch Martin's video below.

    In it, he explains that there is a third option – a 'halfway house'. You take the loan, accepting the fact that interest will be charged at RPI from the day you receive the money, and then decide to clear it in full once you graduate and have a clearer understanding of your future earning potential (and therefore how likely you are to pay off the loan).

    So you are, in effect, buying time. It will cost you in interest, but it may be worth it if the extra time enables you to make a better financial decision in the long run.

    Martin Lewis: Why the cost of going to Uni will DOUBLE for many from September
    Embedded YouTube Video

    The clip above has been taken from the The Martin Lewis Podcast, courtesy of BBC Sounds.

  10. Repayments are taken automatically if you're employed, so don't worry about debt collectors

    You repay your student loan in the same way as you pay income tax. So, if you're employed and earning over the repayment threshold of £25,000, it couldn't be easier because your employer will deduct your repayments from your salary before you get it.

    In other words, the money you get in your account each payday is yours to keep – you don't need to worry about setting some aside to cover your student loan. Not only is this hassle-free for you, but it also means there's no chance a debt collector could ever come knocking at your door for repayments as it's all automatic. 

    • How the loan gets repaid if you're self-employed

      If you're self-employed you pay income tax via HM Revenue & Customs' self-assessment scheme, so you'll need to make student loan repayments in the same way.

      Before the deadline at the end of January each year, you'll need to declare your total earnings and then work out how much you need to pay in tax and student loan repayments, before sending the whole lot to HMRC.

      Crucially, therefore, the money you earn throughout the year is not all yours to keep, some will need to be paid back, so make sure you put enough aside .

      If you're self-employed and fail to make student loan repayments, the Student Loans Company will try to contact you. Ignore that, and it will send debt collectors your way, and you could eventually end up in court.

  11. You can pay off your student loan early


    You can choose to overpay some or all of your student loan whenever you want. But just because you can doesn't mean you should. We're currently working on a guide to take you through it in full, but in the meantime, here's what you need to know in brief.

    With a regular bank loan, you know you'll have to pay it back eventually, so it makes sense to try and do this as quickly as possible to minimise how much interest you have to pay. But that logic doesn't apply to student loans, as whatever you haven't paid back gets wiped after 40 years, and also because interest is charged in line with inflation, so the loan isn't costing you anything in real terms.

    So, assuming you've got the cash to voluntarily increase your student loan repayments or pay back your loan in full, the ONLY time it might make sense is if BOTH of the following apply:

    • You're confident you'll clear the loan in full before it's wiped after 40 years. According to analysis by the IFS, you're virtually certain to clear your loan if you're earning £55,000 or more by the age of 30. Lower earners may not pay off the loan within the 40 years, though, in which case there's no point in overpaying on a loan that's likely to be wiped.

    • You can't put the cash to better use. Even if you can afford to pay off your student loan, you need to consider whether that's the best use of the money. If you answer yes to any of those questions, you shouldn't overpay your student loan:

      - Do you have other debts that are costing you more than your student loan?
      - Would you be better off saving towards a deposit for a house?
      - Can you earn more in savings than your loan is costing you in interest? 

    Even if you're confident you'll clear the loan within 40 years, you're debt-free, and you're a homeowner, without a crystal ball, there's still a risk any overpayment you make could end up being a waste if your circumstances change.

    For example, imagine you're a homeowner with a high-paying job. You have savings, so you use them to overpay your student loan. Shortly afterwards, you get made redundant. You no longer have your savings to fall back on to help with your mortgage repayments, so you have to take out a bank loan at a much higher interest rate than your student loan. The result is a net loss.

    The bottom line: think very carefully about overpaying on your plan 5 student loan.

  12. Your student loan WON'T go on your credit report

    When you apply to borrow money from a bank, it looks at three things – your application form, any previous dealings it's had with you and, most importantly, the information on your credit reference files – to work out if it's likely to make money from lending to you.

    But while your credit file (also called a credit report) contains quite a lot of information about you, one of things it definitely WON'T include is information on your plan 5 student loan. So when they look at your credit file, lenders won't factor this into any decision about whether to lend to you.

    Though that's not to say it can't ask you directly on the application form whether you have a student loan. And this does happen, however it's usually only for larger transactions like mortgages and even then it's not something you especially need worry about – see below.

    See our detailed guide for more on how credit scores work.

  13. Student loans do impact mortgage applications, but not like other debts


    As explained above, student loans don't appear on your credit file, so having this 'debt' won't put lenders off and won't prevent you from being able to get a mortgage. But though lenders don't view student loans like other debt, they DO still have an impact.

    As part of any mortgage application, lenders do affordability checks to work out if you can afford to make the repayments. Having to pay off a student loan each month will be viewed in the same way as your other regular expenses like childcare, commuting, or gym membership. In other words, as your student loan lowers your take-home pay, you'll be seen as being able to afford smaller mortgage repayments.

    That said, studying at university often results in a higher salary, so even with your student loan, you may well be in a better position mortgage-wise than you would've been had you not gone to university.

  14. Warning – there's no guarantee there won't be more changes to student loans in future

    The good news if you've made it this far is that you now know your way around Plan 5 student loans. Congratulations!

    The not-so-good news is that this guide only covers how the system works now. There's no guarantee it'll stay that way for the duration of your loan term (of up to 40 years), because Parliament has the power to amend rules made in the past.

    While changes to student finance usually only apply to new starters, this unfortunately isn't always the case, so it's impossible to be certain that the terms under which you take out a student loan today won't have changed by the time you clear the loan.

    In other words, you're being asked to commit to a student loans system that's difficult to trust. That may sound scary, but unless you've got a crystal ball, the reality is that if you want to go to university, you've got little choice.

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