New student loans to cost many 50% more: Martin Lewis' 6 need-to-knows about 'Plan 5' English student finance

Martin Lewis: Now time to talk student finance, there is a new academic year starting in September, there's hundreds of thousands of students starting for the first time and hundreds of thousands more will be continuing.

And student finance is a political football. Not only that, it is full of fundamental misunderstandings and myths about the way it works. So I want to prepare everybody for the start of the new academic term. And to help me have some guests on the podcast. So first of all, I'd like to welcome Pippa and George from Litchfield. Pippa, you're the mum, George you’re 17 looking at going to university. Tell me what are you thinking about the students situation? Where are you on this?

George: Well, honestly, I'd like to go to university, but also I feel like there's a lot of there's a lot of baggage that comes with it. So it's kind of not the most appealing thing as opposed to something like an apprenticeship.

Martin: Well, I mean, both are good choices if they're right for you. What's the baggage that you're talking about? That comes with going to university. Are you talking about student finance? What is it that scares you the most just being in debt from student loan? Okay, so I was waiting to see if you would say the D word, the debt word, because that's what puts many people off. And you know, there was reports this week talking about some people, hundreds of thousands of people over 50,000 pounds worth of debt, and some people over 200,000 pounds worth of debt. I think perhaps that's not the best way to explain it. Pippa, where are you? Are you more sanguine about this? Or do you have the same fears and panics as George?

Pippa: I didn't used to have the same fears until kind of the economy has kind of flattened a little bit. So whereas probably a few years ago, his father and I were in a position to do more for him through university, we're probably not as able to do that now. So I'm hoping that things are going to pick up with the economy a little bit to enable us to do that. But that was, you know, that's kind of my main concern.

Martin: Just let me dig at this a little bit more before I get into my explanation, because I'm always fascinated to see what people know and what they don't know, this isn't a judgment view. This is a judgment of how well things are explained. When you say to help, what is it you would be planning to help with if you could help?

Pippa? So I would be paying his fees and his accommodation.

Martin: Very interesting.

Pippa: Basically, I don't want him to come out of university with any debt. But I think it's inevitable that that's, that's going to happen.

Martin: So as you may hear later, I would think that paying his fees before he went to university would be a potentially very serious financial mistake. So we'll talk about that as we go forward. Gareth from Guilford, you've got four sons, I hear.

Gareth: Yes, two are 19 and are 17

Martin: Are any of them at university already?

Gareth Yes one of the 19-year olds is at university. And our concern for that situation is like, the lady was just saying, it's the helping outside of it, we're finding that the maintenance loan, or grant or whatever it's called, is essentially not even enough to cover his actual accommodation fees. So that's, obviously a big concern. And then the 17 year olds are obviously seeing that and thinking, they don't want to get into the same situation. They don't want to get into debt struggle, once they get there.

Martin: I agree with you. I think the Maintenance Loan is the biggest concern, which is why it always frustrates me that what gets the coverage and the column inches is the level of tuition fees and the total level of debt, the total level of debt is actually a problem for graduates. It's not a problem for students. So it's fascinating to hear where you all are. Before I start to explain it to you, I thought I did an interview on The Today program, a rush last minute one that got in touch me at the last minute, it was at the end of the program. It's slightly more political than we're going to do. But I thought it would make quite a good setup for where we're going to go. So let's play it. Here's Nick Robinson.

Nick Robisnson: quick last word now on that data that we've been commenting on throughout the program. That reveals that almost 1.8 million people now have at least 50,000 pounds of student debt. These figures from the Student Loans Company also show that more than 61,000 have balances of above 100,000 pounds, and other 50e ach owe 200,000 pounds. We're joined by the founder of MoneySavingExpert.com, financial journalist Martin Lewis. Now I think you've long argued haven't either, we're actually looking at the wrong thing here the size of debt, sounds scary alarms people, these figures seem extraordinary. But it's not really the point in your view.

Martin: No. And in fact, my buttocks clenched slightly when I heard you, you were doing this story, because it's this type of story that enabled the government to double the cost of student finance without anybody noticing. Because student finance for the vast majority of students is not about what you owe, but what you earn. You repay 9% of everything above a threshold for most of the students will be in your survey they'll be on plan to which is England starters 2012 to 2022, you repay 9% of everything above 27,295 pounds.

So let's just make this simple. Let's say you owe 20,000 pounds and you earn 30,000 pounds. Well, you're going to repay 9% of everything above the threshold that's 250 quid a year. Now let's say you owe 50,000 pounds and you earn 30,000 pounds. What do you repay 9% of everything above the threshold about 250 quid a year. Let's say they put tuition fees up to a million quid a year and you owe 3 million pounds what you repay? 9% above the threshold, 250 quid a year. And the point is we only think what you owe dictates is whether you will clear in full before it's wiped, which for those on the plan to loans is 30 years. And the stats are only 23% fully clear.

The whole way we phrased you frame student loans is because Tony Blair was too scared to call it a tax. It really is effectively a limited form of graduate tax. So he called it a loan because that would be better because you've made a promise of no new taxes. In other countries it’s a graduate and contribution system. They don't call it a loan. And just to finish that first point, because of all this framing about debt, and going on about debt rather than actually focusing this as quite an expensive additional tax, the government have dropped the repayment threshold, which is a bit like fiscal drag, which means students on the new loans who started since 2023 are going to repay a lot more because they repay for 40 years, and they've got away with that without anyone screaming. Instead, we're screaming about 100,000 pounds with debt, which is irrelevant for the vast majority of people who have it.

Nick Robinson: Nobody makes it clearer than you Martin, but I just really want to reinforce this in the last minute that you've got Martin with us, which is, you're saying focusing on the debt is just a total distraction, focus on the rate at which people pay back? And what would that mean, if they listened to you, for a future government who wanted to change this?

Martin: Well, first of all, you call it a graduate contribution system, you would completely rename it. The biggest problem in Student Finance is actually the loans are too small, students in England on their maintenance loans have had a below inflation rises, which is pricing out those people, especially from non University backgrounds, which is a real threat to social inequality. The whole way we frame this discussion is wrong. We are student loan illiterate, it's misnamed, misframed, misunderstood. And we need to be very careful, I wish I could do an hour with you to explain it properly. But when people can go and do their reading on it,

Nick Robinson: You've got 10 more seconds, you will know because lots of people come to you for advice, that the size of debt scares people, even if it is real.

Martin: It does. That's why along with the Russell Group, we can paint to totally change the way people have statements. Many people try and overpay unnecessarily when overpaying won't actually help them, won't mean they pay a penny less in future. Especially plan 2 loans where the vast majority of people will not clear in full, only the highest earning graduate should focus and look at the actual interest get you about an hour.

Martin: Okay they didn't have a full hour for me there. But I certainly have lots of time because this is my own podcast. And I'm delighted that I still have with me Pippa and George and Gareth, and what I want to do with you now guys, I'm going to talk through the five things I think everybody needs to know about student finance.

Now it is worth noting, I'm going to talk about the situation in England for the moment. I'm going to come later for people in Scotland, Wales and Northern Ireland, because there are very serious devolution differences in the way that student finance works. I also need to state I'm going to explain to you the system for people who started university after 2023 in England. There was a rather under the radar seismic change, which unfortunately, in practical terms will have substantially increased the cost that many people pay to go to university in England, but not by increasing tuition fees or not by increasing the debt. And as you've just heard, in that interview, that's one of my great frustrations. So everything I'm talking about is for 2023 starters and onwards. For people who went beforehand, you are on a different system, this does not work exactly the same way for you.

So let's begin. So George, let me address this one to you, as you were the one who is worried about the debt, the student loan price tag is often 60,000 pounds or more, which adds up, you know, tuition fees or up to 9250 quid a year, times that by three because you're on a three year course, adding the Maintenance Loan and 60 grand seems normal. But you don't pay any of that, the student loans company pays tuition fees for you, and it gives a Maintenance Loan. I'll be talking more about that later. And actually, that 60,000 pound price tag bears very little resemblance to what you pay. Some people will pay far, far less, some will pay nothing at all, some will pay far, far more. And it's really important to understand the mechanics of what you pay. Now you start repaying University in the April after you leave. That's when you're first eligible to start to repay. For you, on what are called plan five loans, you will only repay if you earn over 25,000 pounds a year. If you earn less, you do not pay anything back and you will repay 9% of everything you earn above that amount, so earn more, you pay more, earn less, you pay less for. The loan, regardless of how much you've paid unless you've cleared it all wipes after 40 years. It's gone. You do not owe it any more. You're not obligated to pay any more. Even if you hadn't paid a penny. After 40 years you would not have to pay any more money back.

With student loans, while they're called a loan, there's no worry of debt collectors as it's repaid via the payroll, which is what happens when you're working. You go to work you're paid, the money just like your tax comes off your salary before it comes in your pay packet. The same happens with student loans. And for those who are self employed, they pay through the self assessment system. And the debt by the way doesn't go in your credit file. So you will with me so far about the system? In a way the repayments are initially for graduates, not students? George, did you know that?

George: No, not a clue. Not a clue.

Martin: Did you not know about the you only pay if you earn over 25,000 pounds?

George: No, no idea.

Martin: Okay so, well, this is really important. So you're starting to see now that one of the things that people often say to me is, and parents are often the one they say, but what if I don't get a good job? What if I go and I'm, you know, the phrase they use, I'm working at McDonald's, and I'm on 18 grand a year, how will I pay the debt? Well, the answer is you don't have to, you're earning less than 25,000 pounds a year, it wouldn't be an issue. The issue is never, I don't earn enough to pay the debt. What do I do? Well, you don't pay the debt, you're not supposed to pay the debt. The issue is actually what happens when you earn more.

And I'm going to move on to that next, which is my next point. This is perhaps the biggest one. Frankly, it turns the way most people think about student finance upside down. So take your time to think about it and understand it. The amount you borrow is mostly irrelevant day to day. This works more like a tax, because you pay 9% of everything you earn above 25,000 pounds. So George, do you do maths in your A levels by any chance? Are you good at maths, or should I not do it with you? Maybe Gareth, are you good at maths?

Gareth: You put me on the spot, but go on.

Martin: Right. So Gareth and George we'll get you playing this one together. It's very simple. Here we go. So you repay 9% of everything you earn above 25,000 pounds. If you owed 20 grand. Now, I actually did this example in The Today program. But our guests here that wasn't played to them. We added that afterwards in the podcast, so they haven't heard it. And I think it's worth emphasizing again. So let's imagine you owe 20,000 pounds, that's the level of your student debt. And you're earning 26,000 pounds, you repay 9% of everything earned above 25,000 pounds. So George, it's not a difficult question. How much more than 25,000 pounds is 26,000 pounds?

George: 1000.

Martin: Do you know what 9% of 1000 is?

George: 90?

Martin: It is 90. It's exactly 90. So if you owe 20,000 pounds and you earn 26,000 pounds, how much do you repay?

George: 90 pounds

Martin: Okay, now let's imagine your debt is 50,000 pounds. You owe 50,000 pounds. You earn 26,000 pounds. How much do you repay a year?

Gareth: Still only 90.

Martin: Still only 90 because you repay 9% of everything above 25,000. The fact that you now owe 50,000 doesn't change what you repay. Do you understand? So now let's just go wild. They've just announced they're putting tuition fees up to a million pounds a year. You've left university you owe three million pounds. You earn 26,000 pounds a year. How much do you repay?

George: 90 pounds.

Martin: 90 pounds. That is the big brain fuddle that people don't quite get. What you owe, does not dictate what you repay. What dictates what you repay is what you earn. So if you earn 26 grand, no matter what you owe, you will repay 90 pounds a year. If you earn 35,000 pounds, which is 10 grand above the threshold, you will repay 900 pounds a year. Whether you owe 20,000 pounds, you owe 50,000 pounds, you owe 200,000 pounds. What you repay depends solely on what you earn. So here's a question. In that case, what difference do you think what you owe actually makes this quite a tough one, but I'll just see if any of you've got there.

George: just how long you're paying it for.

Martin: Exactly. That's exactly the point. What you owe dictates whether or not you will clear it within the 40 years when it wipes, that is the crucial point of this. It doesn't dictate how much you pay a year, it doesn't dictate your annual cash flow. It doesn't dictate how much you're going to struggle to pay or not. You're going to pay 9% of everything above 25 grand. Now, one of the big changes that happened in the new 2023 English student finance is the equation changed. Previously only 23% of graduates were likely to clear in full within the 30 years it wiped. Now you've got 40 years you have to pay, and you start repaying at a lower level of income at 25 grand rather than the others repay 27,295 pounds, 52% are likely to clear in full. So in reality, though, the vast majority of people unless you are a high earner, are going to be repaying this student loan for most of the 40 years, some will repay for all the 40 years and then it will wipe, many will be repaying between 30 and 40 years.

So in reality, the way this will feel is not like a debt. Because what you owe is sort of irrelevant. It's going to feel like an additional tax, because income tax works that you pay a certain percentage above a threshold. So in reality, for most graduate starting, instead of being worried about a debt, you should be worried about a tax because tax is expensive. So let me just go through this quite simply, you are going to repay 9% more tax. So George, I'll do it with you again. Don't worry, again, not too difficult. Currently, everybody is allowed to earn up to 12,570 pounds a year, and they don't pay tax on it. While the same is true for those who went to uni and those who don't. From 12,571 pounds to 25,000 pounds, you don't repay the student loan, you repay 20% of all learnings between that that's the same for uni go as a non uni goers. From 25,000 pounds to 50,270 pounds the tax rate is 20% for those who haven't gone to uni, If we treat the student loan as a form of tax, what is the effective tax rate for somebody earning over 25,000 pounds, but less than 50 grand?

George: 29%?

Martin: 29%. Exactly. So if you don't go to uni, it's 20%. If you do go to uni, you're effectively going to pay 29%. If you earn over 50,271 pounds, don't go to uni it's 40%, do go to uni it's 49%. And if you're lucky enough to earn over 125,140 pounds, don't go to uni it's 45%, do go to uni it's 54%. But if you're earning that much, you will likely pay off the loan relatively quickly. So you won't be paying the higher rate for longer.

But an easier way, this is a practical, not a political point, an easier way to think of this is a 9% additional tax on earnings above 25,000 pounds, it is not a debt that is going to hang over you, it is not a debt you're going to have to worry about if you lose your job and you're not working, they're not going to be chasing you because you're not earning enough. So effectively the real equation that you're looking at for going to university or not, is will it be worth me paying a higher rate of tax for likely 30 or 40 years in order to get a degree? Not is it worth me having a debt hanging over my head? Pippa what do you think? Does that make sense?

Pippa: Yeah, that's really put it into perspective actually.

Martin: And you heard, I'm being very careful, I'm not saying it is worth it, the way they've changed the system makes it expensive. And I actually think it clears the mind if going to university is the right option for you. And let's be plain most people who go to university earn more afterwards, they earn substantially more than those who don't go to university. But if you're taking a course for fun that isn't going to enhance your career and isn't or isn't going to allow you to fulfill your passion, because not everything is about money, then maybe University isn't for you. If you're going to go and take a course that is going to give you a better career and higher earnings later, then it's likely to be worth paying the 9% extra tax. It's not cheap. I'm not trying to say to anybody, don't worry about the debt. I'm trying to say think of it like a tax. Gareth, where are you on this?

Gareth: To me is I understand what you're saying which I you know, in principle, if you're earning a lot more, that's fine. I guess, having gone through the school system in the last 14 years, what worries me is there are jobs out there, and I you know, off top, my head sort of teachers, if you wanted to be a history teacher say you are expected to have a degree, but then the taxes the 9% University tax is going to disproportionately hit those people that are sort of have done a vocational degree rather than something that's going to earn them a lot of money. If you're going to university for a specific career that will require a degree and you're going to earn good money. Then as you said, the 9% should be fine, but I think there's a lot of degrees out there that not necessarily are for the money, you want people to go to university for a passion. So I think on a tax point of view, I understand. I think, as I mentioned earlier, my bigger concern is actually the living cost for students and effect, because at the moment, most of them aren't even getting their loan or their maintenance isn't covering even the accommodation costs.

Martin: I absolutely agree with you. And I'm going to come on to maintenance in a moment, because it's one of it's one of the big points I want to explain to people. Look, you make an interesting point, what I would say is do remember that, if you don't earn that much, then you don't repay that much. And in fact, you know, somebody who's going to be on the, say, a 30,000 salary or the equivalent of that with inflation, over their working life is not going to pay anything close to what they borrowed over the 40 years, they're not going to clear it in full. And interestingly, and maybe this will help George think about it, and maybe it'll help all of you think about it. When student loans were introduced, the system was called an income contingent loan system. And in other countries they call it a graduate contribution system. The system we have is known as a graduate contribution system, they don't use the word loan because effectively the way this system works is you contribute in proportion to what you earn to the cost of your university education. And you contribute not when you're a student when you're a graduate. So a graduate contribution system, which is actually what I would like it to be called.

Now one of the reasons it's so difficult to explain student loans is people because we frame it as a loan, they think of it in this language of debt and interest, when in reality it would be far easier if it was called a graduate contribution system and I say, Well what you repay what you contribute is in proportion to what you learn when you're a graduate. And people go yeah that makes sense. And when the very first student loans before 1998 came in, they were like a personal loan, you once you were repaying you paid a set amount a month, it wasn't proportionate to what you earn. But the proportionality to what you will earn is really important. It's 9%, above 25 grand, so it should be affordable. Gareth, what you have said is absolutely right, I said before, the way they've changed the system, by lowering when you start to repay, instead of 27,000 to 25,000. And by extending how long you repay from 30 years to 40 years, even though they've lowered the interest rate does actually effectively mean the state will get back almost double the money that it was getting back before. And so that means the individual will be contributing a lot more, which I do think means people do have to think of whether it's worth going to universit.

But you talked about the case of teachers who do actually earn substantially above average salaries in the country. And they do, you know, grad that going to, you're not going to be a teacher in most cases unless you have a degree. And they do earn substantially above average salaries, not high salaries, but substantially above average salaries, it is a balance as to whether it'd be worth it. I suspect, if I did the math over the lifetime of the loan, they would still earn more even making the 9% contributions than a typical non graduate would earn in their lifetime. So that's the balance to be taken. But the gain for a teacher of going to university financially, at least, isn't as big as it used to be. Let us go back to George. George, are you following all this? I haven't gotten to a bit too arcane for you.

George: I think so.

Martin: And what how does it make you feel because you were worried about the debt? Do you understand my point? It isn't really the debt that you need to worry about? It's the tax element.

George: Yeah. And honestly, the tax element doesn't even seem like a big deal. Like I don't really see what everyone's complaining about.

Martin: Well, I mean, people always complain about tax. I should say, technically, it isn't a tax, because because it's a hypothecated payment to individuals and you pay it back. It isn't but it it works like a tax is the point I'm trying to make. I wouldn't call it a graduate tax. I'd call it a graduate contribution system, but it's far closer in a way to a graduate tax and the graduate loan.

And yet certainly if you weren't 30 grand, well, let's just let's just be really plain. You earn 30 grand you're going to repay 450 quid a year, you earn 35,000 pounds you're going to repay 900 pounds a year, you earn 45,000 pounds you're going to repay 1800 pounds a year. So it is the amount that you pay, the more you earn, the more you pay, it reduces your disposable income, but it isn't hanging over your head. I think George it's still worth thinking about but no longer having the fear of debt, and quite right at your age to be scared of debt. We don't want to get into debt when we're your age. No longer having the fear of debt might help you make a more clinical decision.

But let's move on to Gareth's issue now with student finance. There is an implied amount most parents are meant to contribute. And there has been a paucity of information about this over the years. In fact for a long time it was hidden. And I have campaigned for it to be made overt and it is a bit better than it was we have had some changes over recent years. But let me explain when to go you go to uni you're eligible for a loan to help with living costs, it's called the maintenance loans.

Yet for most under 25s even though you're old enough to vote, old enough to get married, old enough to fight for our country, your living loan is dependent on family residual income, which for most people is effectively the income that your family has, minus some pension contributions and a very minor adjustment if you've got more than one dependent child. But for most families, the income isn't the young person's, the incomei s their parents. So in reality, the amount of living loan you get depends on parental income. And living loan starts to be reduced at family income of just 25 grand until once you're around 65,000 pounds. That does depend on whether you're living at home, living away from home, or living away from home in London. On income of around 65,000 pounds you get the minimum living loan. This is in England as systems work differently elsewhere in the UK, the minimum living loan, which is around half of the maximum. So let's just make it really simple. If you're living away from home and the maximum loan is 10,227 pounds and due to parental income you're only getting 6000 pounds. Well, they never say it. Pippa, where do you think they're expecting the 4227 pounds shortfall to come from?

Pippa: Me?

Martin: Correct. They don't call it a parental contribution. And George cannot mandate you to give him the money. But that is implied in the system that you will fund that difference. Which is why I warn all parents of kids who are going to be coming to university age even in the next five or six years to go online, wherer there are parental contribution calculators and work out roughly what you will be contributing and make sure that you've got the money put aside, because paying for it out of one year's income is quite tough.

I mean, Gareth, you've already experienced this, haven't you? Did you know? Have you done the maths to see what the shortfall from the full loan is to what the loan that your children who are at university are getting and what the parental contribution expected is? Or had you not done that maths?

Gareth: I hadn't done it before. It was only on one of the open days that I found out that it was even means tested. And then when we went through the process, it was it was quite a shock of what he was allowed to get and what the expectation was that we were meant to help. And I guess with you know with cost of living and interest rates on mortgages and stuff that people mentioned, that definitely changed our circumstances. And it made it much more difficult for my son at university that he's not been able to rely on us for as much as he'd need. So it was it was a shock that the maintenance grant didn't even cover his basic halls of residence in his first year.

Martin: And it's very interesting to me years ago when I used to do roadshows for my TV program, I always remember I had one student come up to me and say he didn't know how he was meant to survive his loan. I mean, it was years ago, so I'm making up the numbers, his loan was 5000 pounds, and his whole fees were 7000 pounds, he was living in a hall of residence. And he didn't know what he was supposed to do. And his parents had said to him this is your problem you're an adult now. And I said, Well hold on, and we went through it and his parents were relatively wealthy. So he was getting the minimum loan. And they had not been told how the system worked. They hadn't been told that the reason his loan was smaller was because of their income, that he wasn't getting anything close to the full loan, which someone who comes from a background where there's no parental income would get, which you could argue is what the state sees is the minimum that you should have to live off. And so I actually spoke to his parents on the phone from memory and I explained to them how the parental contribution system worked and said, Look you're quite right to say you want him to stand on his own two feet. But effectively you're giving him a four or five grand a year disadvantage here, because you're not giving him the money that is reduced because you're expected to give it to him. So maybe anything above that you might want him to do.

But of course they were in the position that they could help and not everybody is, which is why you have to look at going to work at university. It's recommended you don't do more than 15 hours a week because it interferes with your study, but up to 15 hours can help to help fund if your parents don't have the money. You look at the grants and bursaries websites that are out there. And just while I'm on this, and I think it probably doesn't apply to any of you, but what's really difficult in this situation is the parental contribution is the family income of the main carers home and they do it based on who's in the home this year, even though they're doing income two years ago.

So I did have a case, a girl, a woman, I should say, girl who was at university in her first year, when her mother's partner moved in with her, she had been on the full loan because the mother was low income. But because the mother's partner had income, and they were now sharing a house, from that point onwards even though they were looking at the income that they had two years ago, his income was taken into account, she for the next year was then only given the minimum loan. There was something like a 5000 pound gap, and how is she going to go and ask the mother's partner to pay 5000 pounds? She can't, the mother doesn't have any money, ad she had actually had to leave the institution she was in because she couldn't afford to stay and live away from home to do it. So there are it's horrible, isn't it?

Gareth: I think the bigger problem is you know that the cost of living, mortgages hasve gone up substantially and what would have been maybe a few years ago sort of potentially spare money that we helped out has gone. And then the idea of then having to find a lump sum on top, even if it's spread across the year, is really difficult. So then the expectation immediately then drops to the student, and the extra jobs and all the rest of it, or savings, or whatever they can do. And so I think it seems bizarre that the maintenance grant should even be in a position where they're getting less than basic accommodation. And the other sort of a double whammy for students is accommodation costs have gone through the roof as well, because once they get into their second year they are into private rented and all of the private landlords potentially their mortgage costs have gone up so they put the rent up. We're in the sort of catch 22, where parents are tighter than they were, and rent has gone up substantially. So it's really tough.

Martin: It is incredibly tough. I don't disagree with a word that you've said, the worst thing is that in England, specifically when inflation was over 10% the Maintenance Loan was only increased by 2%. And effectively we have degraded the Maintenance Loan in real terms very substantially over the last two years. Now that certainly is an issue of social inequality and social mobility from those from the lowest incomes. Because if the full loan is not enough to live off, which it isn't because it's not going up with inflation, then that is certainly off putting from those from non traditional university backgrounds. But also this hits right the way up into the middle income scales to because of the Means Test assessment. It is absolutely a huge added pressure on parents.

Now I've been campaigning to have the Maintenance Loan increased. Aguably if you do the parental contribution calculation that could increase the parental contribution that's expected from some parents too, but at least it would mean more raw cash coming into the student. But nothing is doing on that. Clearly, we're about to have a general election, and the two main parties don't have any plans to increase it and to catch up with inflation. So that situation isn't going to change.

And I think Gareth, you're absolutely at the nub of this. If you want my practical view of what people need to look at when going to university, forget the focus on tuition fees, forget the focus on what you pay afterwards. Those are both deal withable and their issues for graduates, you need to look at the cost of going to university or the cost of living while you're there at the parental contribution. And it's a terrible thing because I think this isn't what our university systems about, you may need to look at doing comparative costs of different universities for living, what the accommodation costs are, what the food and other and travel and transport costs are. And you may need to look at your university choice within the lens of the cost of living in those different cities and towns around the UK, rather than purely what is the best university for you. And that is not a good situation but that is absolutely the only practical course of action, because I will be honest with you. I don't see the situation over maintenance loans changing for at least the next two or three years and possibly longer.

So Gareth I agree with every word you said and I've been campaigning on it. I'm trying to explain to people it's a tricky balance for me because I want people to understand the system. I don't want any bright young person for whom University is right for to be put off going to university by the finances, but at the same time we have to be honest about the practicals. Don't worry too much about how you pay afterwards, you know, my big hope to be honest.

And I say this to to George. George, I hope University is going to cost you a shedload of money, as it means, because it means you will have earned a shedload of money. Right? So I hope it's but my bigger worry is can you afford to go? And Gareth you've got you've got four kids and the amount they take into account in the in the parental contribution assessment for the fact that you have four dependent children is virtually negligible. It's just a very small adjustment. Can you afford for four to go?

Gareth: You're right. Particularly on the accommodation front, which you only learn as a parent when you start going to the open days and start reading the accommodation costs. There's a genuine lack of accommodation once they get out of the first year.

Martin: And that's the practical reality. And I think you've expressed it very well. And I hope that people you know, for those people who haven't fully got their offers or aren't decided on the university, Yet this is a big thing that you need to look at. I'm conscious we're doing a very long podcast so I'm going to run through my couple of final points with you guys, if you don't mind.

Now one of the big thorny questions about going to university is the interest rate on student loans under the new system. For those who started university in 2023 or longer, it is set at the rate of inflation, the retail price's rate of inflation, that's actually the slightly higher rate of inflation, those who went before we're paying between inflation and inflation plus 3%.

Now what that means the fact it's only at inflation is you don't actually in real terms, which is an economic term, you don't actually repay more than you borrowed. So you may borrow 10,000 pounds now which is enough for 100 shopping trolleys worth of goods, you may in 20 years time repay 15,000 pounds, and that's the face value of the money. But in 20 years time that 15,000 pounds would still only buy the same 100 shopping trolleys worth of goods that you borrowed. So your purchasing power is not diminished by the interest, which means effectively there is no real costs are going to university, although when you get your statement, just in the same way that inflation rises and of course the inflation rate only moves once a year, it's based on the March rate of inflation, and it changes in the September, it's going to be almost certainly going to be 4.3%. From this September, you will see the amount you owe rise in actual monetary terms. But in real terms it's rising in line with purchasing power, there isn't a real cost to you. My final note is everything I'm explaining to you today is about the system as it stands now.

But the system can and has changed. Student loan terms in my view should be locked into law, so only an Act of Parliament can negatively change them once you've started uni but they're not. And a few years ago, we did see a bad change, though thankfully, after much campaigning, and I threatened to take the government to court by judicial review, it was overturned. Most of the past changes have been about the repayment threshold. So at what point do you start repaying so for plan five loans, it's 25,000 pounds, it is due to go up with average earnings in the future. But a future government may decide they're not going to put it up a bit like fiscal drag on taxes. So what I would say to you is I think it is perfectly possible the repayment threshold changes in future. I think other term changes are unlikely once you've started your loan. So I'm not saying they might not change the whole student finance system in future but that would be for future students. Once you've got your loan, mainstream other changes are unlikely but not impossible, but we could see changes to the repayment thresholds. And it's worth being aware of that. And I think that probably ends where I am. So anything left from the three of you, Pippa and George, how's it gone? Where do you feel now? More or less likely to go to university on the back of that George?

George: Definitely more likely.

Martin: Gareth I think you knew most of this and your frustration is about the living loans. But hopefully at least the the panic afterwards about the debt may have subsided a little.

Gareth: Yeah, it does help a lot and I think it'll help the my younger children to understand that it's essentially not really a loan it's a tax. So I think from that point it's been really useful.

Martin: Well I really appreciate the three of you coming on. George I want to wish you the best future whatever you choose to do whether university or an apprenticeship or something else is right for you. I hope it goes brilliantly well. And the same to Gareth and to all of your four boys I wish them all the best thank you thank you for joining me all of you.

If you already have a higher education qualification, you're unlikely to be able to borrow the money – this is mostly for first-time UK undergraduates (including Higher National Diploma/Certificate courses).

The main exception is with teacher training courses, where you can usually get funding even if you already have an undergraduate qualification. For more info, see Gov.uk.

Yes, but only if you have annual income of at least £25,000, within which at least £2,000 comes from savings interest, pensions, or shares and dividends.

If so, this will also be treated as part of your income for repayment purposes. You'll need to repay 9% of that too via self-assessment.

The amount you pay is calculated based on your pre-tax income above £25,000/year, but the money is taken after you've paid tax. For example...

If you earn £35,000/year gross (pre-tax) salary, you will repay £900/year. Yet you still pay tax on the entire £35,000 income. You don't get any tax breaks on the fact you're repaying the student loan.

You pay student loan repayments on the same income that your employer pays national insurance contributions on – so before tax and pension contributions are taken out. Whether your pension scheme uses a net pay arrangement, or relief at source, the student loan is taken first. For more info on the different pension types, see Pension need-to-knows.

Yes. The loan counts as income and will be factored in. For more help, see our 10-minute benefit check up tool.

The answer is easy for those who are working – don't spend more than you earn. For students, it's tougher.

My answer is to add up your living loan, any money from parents, grants, and work, and that is your income. Don't include 0% student overdrafts or other debt as income. Use our Student budgeting guide for tips on managing your money while at uni.

These aren't that common, but if you're likely to struggle, it's worth checking for bursaries and scholarships.

Your family income is assessed based on income two tax years before you apply, so for 2025 starters, it's the 2023/24 tax year. If it has dropped substantially (over 15%) since then, you can ask for a current year income (CYI) assessment.

A non-repayable, non-means-tested, disabled student allowance (DSAs), is available on top of other student finance to cover costs you have due to a mental health problem, long-term illness or another disability.

How much you get depends on your individual needs and where you're studying – it is not means-tested. The available amounts are per year, except for specialist equipment figures, which cover the entire length of your course.

For full-time undergraduate students for 2025/26, the maximum possible funding is £27,783 a year. It's not usually paid as cash, but instead directly to suppliers who provide the recommended support – whether it's computers or software, ergonomic equipment, or non-medical helpers, such as mentors or specialist tutors.
Part-time students get pro-rata amounts.

You may also be able to get help with "reasonable costs" for travel (for example, if you have to take a taxi because your disability makes using public transport too difficult). In these situations you'll get the extra it cost you, compared to what it would have cost you if you didn't have a disability.

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 DSAs even if you're not sure which university you're going to.

• Uni goers and non-uni goers earning up to £12,570 pay no tax.

• Uni goers and non-uni goers that earn between £12,571 and £25,000 both pay 20% tax on their income.

• Uni goers that earn between £25,001 and £50,270 pay 29% on their income, while non-uni goers in the same earnings range pay 20% tax on their income.

• Uni goers that earn between £50,271 and £125,140 pay 49% tax on their income, while non-uni goers in the same earnings range pay 40% tax on their income, although technically for some earning £100,000 to £125,140, their marginal rate – as the personal allowance is withdrawn – can be over 60%, or even higher for those with student loans.

• Uni goers earning more than £125,140 pay 54% tax on their income, while non-uni goers in the same earnings range pay 45% tax on their income.

It has long been a problem that Muslim students who follow sharia principles and avoid interest have been unable to take student loans. It's a subject I campaigned on back in 2013 – as without the loans, it is purely a question of whether parents can afford it. It looked like it was going to happen, but then fell off the political agenda.

The latest situation is the Government said a sharia-compliant alternative student finance product would not be available by 2025, but it remained committed to delivering a product as soon as possible after. Sadly my comment is: "I've heard that before".

• 2022 starters repay 9% over £27,295 a year, which is newly frozen until 2025. So on a £30,000 a year income, you repay £243 a year. 2023 starters repay 9% over £25,000, frozen until 2026/27. So on a £30,000 a year income, you repay £450 a year.

• The maximum repayment terms are 30 years from the April after leaving university for 2022 starters, compared to 40 years from the April after leaving for 2023 starters. 2022 starters pay interest of up to Retail Prices Index plus 3%, while 2023 starters pay RPI interest, so no 'real' cost).

• For 2022 starters in England, the state will pay 44p per £1, and only 23% of students are likely to clear their loan in full. For 2023 starters in England, the state will pay 19p per £1, and 52% of students are likely to clear their loan in full.