Student loans: England (2012-22)

Everything you need to know about 'Plan 2' student finance

Ignore newspaper headlines about students leaving university with £60,000 of debt. That's mostly a meaningless figure. What counts is how much you'll repay. For some that's far more, for others it's free. This guide is written to bust common myths about how the student loans, grants and finance system works for English students who started uni between 2012 and 2022.


This guide was originally written by Martin Lewis but is now regularly updated by the MSE team.

This is for English students who started uni between 2012-2022. If you reside in England but are starting uni from September 2023 onwards, see 'Plan 5' student loans. Otherwise, see What student loan plan am I on?

Prefer to watch rather than read? See Martin's video below

Note: This talk was recorded in 2019, but the theory behind repaying your loan remains the same. Some of the figures mentioned in this video have changed since the video was made. The following figures are the rates and thresholds for 2023:
 

  • The maximum maintenance loan is now £13,022
  • Graduates repay 9% of everything they earn over £27,295
  • The rate of inflation is currently 7.5%
  • Due to high inflation, the rate of interest was capped at 7.6% in January 2024.

Martin Lewis : Student loans decoded
Embedded YouTube Video

Before we start, I'd just like to say:

For around a quarter of a century, we've educated our youth into debt when they go to university, but never about debt.

It was for this reason, and while no fan of them, when massive changes were announced to student finance for those starting in 2012 or beyond – including the trebling of tuition fees – I agreed to head up a student finance taskforce. The idea was to work with the National Union of Students, universities and colleges to ensure we busted the myths and misunderstandings that resulted from so much political spittle-flying.

For me, what really counts is that no student is wrongly put off going to university thinking they can't afford it. Some may rightly be put off, but unless you understand the true cost, how can you decide?

Thankfully, since then we've also won a separate campaign to get financial education on the senior school National Curriculum in England. Yet it'll be a long time before that truly pays dividends – so there's still a lot of nonsense spoken about student loans.

  1. Don't confuse the cost and the price tag

    With headlines shouting about £60,000 student debt and that getting bigger as loans for living costs increased in 2017, it's safe to say many students and parents are scared by this huge sum – and worry about how they'll ever repay it.

    But in essence that fear is misplaced. That's because the price tag of university is mostly irrelevant. What matters in practical terms is how much you have to repay – and that's a completely separate number from the total amount of tuition fees, maintenance loan and interest.

    What you repay solely depends on what you earn after university. In effect, this is (financially at least) a 'no win, no fee' education. Those who earn a lot after graduating or leaving university will repay a lot. Those who don't gain too much financially from going to university will repay little or nothing.

    A much more important factor to consider is the hidden expectation of parents contributing financially to their children's living costs while at university.

    Many parents aren't aware that they are expected to pick up the slack, which can seriously impact their finances, especially if they've more than one child at university. For that reason, parents should start saving early to ensure they can manage the extra costs.

  2. You repay 9% of everything earned above £27,295 – earn less and you don't repay

    Once you leave university, as long as you haven't taken out a postgraduate loan to complete a master's, you only repay your undergraduate student loan when you're earning above £2,274 a month (equivalent to £27,295/year) and then it's fixed at 9% of everything you earn above that.

    Remember, if you take out a postgraduate loan after your undergraduate degree, you pay this back at 6%, as well as repaying your original student loan. 

    Earnings mean any money from employment or self-employment and, in some cases, earnings from investment and savings.

    If you've started repaying the loan, but then lose your job or take a pay cut, your repayments drop accordingly. To labour the point somewhat:

    • If you earn £28,000 in a year, what do you repay? The answer is £63.45, as £28,000 is £705 above the threshold and 9% of £705 is £63.45.
       

    • And if you earn £35,000, what do you repay? The answer is £693.45. £35,000 is £7,705 above the threshold and 9% of that is £693.45.

    'How on earth will my child be able to afford to repay these debts if they get a poorly paying job?'

    This panicked question has been thrown at me by many parents – and it's really important to examine it in the light of the required repayments.

    Someone on a low wage will be required to repay little or nothing at all. In fact, only higher earners will be shelling out large amounts.

    It's important to note that not repaying much because you're just over the threshold isn't being bad. The system is, in reality, a graduate contribution, designed so that, in the main, those who gain the most financially out of university contribute the most.

    Further info on repaying

    • Technically you repay 9% above £2,274 a month – important if you get bonuses

      You only have to pay back your student loan if you earn over the earnings threshold in a tax year. Yet most payrolls work on a monthly basis. So the £27,295/year threshold is seen as £524 per week or £2,274 a month.

      If you earned over that in a month, such as for a bonus, you could've had the money taken off you. Or if you stopped work halfway through the year, money could've been taken off you, even though in total you earned under £27,295 in the year.

      If that's happened to you, you may be due money back.

      Yet if you earned over £27,295 in a year, but due to irregular income too much was taken from you (for example, you earned £28,000, but had more than £63.45 taken) you can't claim this back, as once you earn over £27,295, your repayments are paid at everything you earn on £2,274/month.

    • Does savings, pensions or investment income count for loan repayments?

      Yes, but only if you have annual income of at least £27,295, 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.

    • How are student loans treated for tax purposes?

      While the amount you pay is calculated based on your pre-tax income above £27,295/year, the money is taken after you've paid tax. For example...

      If you earn £34,000 a year gross (pre-tax) salary, you will repay £603.45 a year (9% of the £6,705 above £27,295).

      Yet you still pay tax on the entire £34,000 income. You don't get any tax breaks on the fact you're repaying the student loan.

    • Do I still have to repay my student loan if I move overseas?

      The answer is yes. The student loan has been set up as a contract, not a tax. Therefore, the fact that you're no longer living in the UK doesn't affect that contract.

      The rules state you're still obliged to repay 9% of all earnings above the local equivalent £27,295/year (2023/24). Not doing so could lead to substantial penalties. And this local equivalent isn't just a currency translation, it factors in the cost of living in your country, so it can be radically different.

      If we ignore the moral obligation to repay the state for the education it provided you, the real question here isn't "Do I have to?" but "How can they make me?"

      This is an issue of enforcement. Certainly if you temporarily leave the UK and come back having missed some payments, expect to be pursued. If you move abroad permanently, never to return, there may be no attempt to pursue you in a foreign court. But there are no guarantees of that.

      What's more, the Government has said it will chase people who move abroad more thoroughly than it has in the past – through 'sanctions' and prosecution. We'll update this guide when more on this becomes available.

      Some further information on this for current graduates (likely to be similar for future graduates) is available on the Student Loans Company website, though it's a bit sketchy in parts.

    • How do student loan repayments affect my pension contributions?

      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. So, whether your pension scheme uses a net pay arrangement, or relief at source – either way the student loan is taken first. For more info on the different pension types see Pension need-to-knows.

    • When and how does the Plan 2 repayment threshold change?

      The repayment threshold has been frozen at £27,295 until April 2025. It'll then increase on 6 April each year, in line with the Retail Price Index (RPI), which is a measure of inflation.

      This is a change from how it worked before the current freeze, as the threshold used to rise in line with average earnings, rather than RPI.

      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 student loan.

      The table below shows what the Plan 2 repayment threshold was in previous  years.

      Plan 2 repayment threshold in previous years

      Date Annual repayment threshold
      6 April 2016 to 5 April 2018 £21,000
      6 April 2018 to 5 April 2019 £25,000
      6 April 2019 to 5 April 2020 £25,725
      6 April 2020 to 5 April 2021 £26,575
      6 April 2021 to present £27,295
    • Part-time students might start repaying their loan while still studying

      Part-time students start repaying their student loan the earlier of the following, either:

      • The April after they finish their course, or
      • The April four years after they started the course.

      Because lots of part-time students do courses longer than four years, this means strangely in some cases they'll have to start repaying the loan in some cases while they're still studying. 

      But, importantly, part-time students still only repay if they're earning over the repayment threshold of £27,295. 

  3. After 30 years, any and all remaining debt is wiped

    You stop owing either when you've cleared the debt, or when 30 years (from the April after graduation) have passed, whichever comes first. If you never get a job earning over the threshold, it means you won't have repaid a penny.

    It's one reason those who are near retirement, who don't have a degree and want one, find it very appealing as unless they've a huge pension, they know they'll never have to repay.

    • What happens on death or incapacity

      The debt is also wiped if you die, so it won't be passed onto your beneficiaries as part of your estate. It's also wiped if you're permanently disabled in such a way that you'll be permanently unfit to work (in such a case, earnings will usually be under the threshold anyway, but this rule's there for rare cases where unearned income is above the threshold to allow the recipient to keep it all).

  4. How much you repay depends on how much you earn

    The below table helps demonstrate how repaying your student loan will vary depending on how much you're earning by the time you reach 30. As you can see - in simple terms - the more you earn, the more you'll repay.

    Instead of looking at an individual with a specific earnings profile, the table takes into account calculations for a cohort of individuals. This better reflects the uncertainty around lifetime earnings projections, and factors in periods out of work.

    As the table shows, the majority of English students who start uni in 2022 and have a salary of £50,000 or less by the time they're 30 WON'T repay their loan in full.

    How likely 2022 starters are to repay their student loan

    Salary at age 30 Proportion likely to repay in full Average amount repaid
    £15,000 5% £23,600
    £20,000 10% £28,100
    £25,000 10% £29,800
    £30,000 10% £39,500
    £35,000 15% £48,800
    £40,000 20% £56,400
    £45,000 30% £64,600
    £50,000 45% £72,800
    £55,000 60% £77,000
    £60,000 65% £78,100
    £65,000 80% £79,900
    £70,000 80% £77,600

    All data provided by the Institute for Fiscal Studies (IFS).

  5. No debt collectors with student loans

    All student loans since 1998 have been repaid through the payroll just like income tax. What this means is that once you're working, your employer will deduct the repayments from your salary before you get it. So the amount you receive in your bank account each month already has it removed.

    This means that if you're an employee, no debt collectors will come chasing as you don't have a choice in the matter and will have paid it automatically.

    • How the self-employed repay student loans

      You always repay the student loan in the same way as you pay income tax.

      For the self-employed, this is done via HM Revenue & Customs' self-assessment scheme. At the end of each tax year, you calculate your earnings and the appropriate amount of tax and loan repayments, and then send it to HMRC. This also applies if you have additional self-employed earnings on top of employment.

      If you're self-employed and fail to pay, the Student Loans Company will try to get in touch with you. Ignore that, and it will send debt collectors your way, and you could eventually end up in court. More information is available for graduates on the Student Loans Company website.

      As a side note, if you are likely to be self-employed, read my Warning to new freelancers and the self-employed blog.

  6. Interest has been capped at 7.6% (for now)

    Don't understand interest rates? Read the Interest Rates guide.

    Until 2012 there was no 'real' cost to borrowing money via student loans, as the interest rate was set at the rate of inflation (measured by RPI).

    Yet for everyone who started university since the major changes in 2012, that's all changed. The interest is as follows:

    • While studying: Usually accrues RPI inflation plus 3% on the outstanding balance. This continues until the first April after graduation, when it changes to...

    • After studying, earning under £27,295/year (2023/24): Usually accrues RPI inflation.
    • After studying, earning £27,295 - £49,130/year (2023/24): The interest rate will gradually rise from RPI to RPI plus up to 3% as you earn more (the interest rises 0.00015% for every extra pound you earn or, put another way, if you earn £1,000 more, you accrue 0.15% extra interest).
       

    • After studying, earning over £49,130/year (2023/24): Usually accrues at RPI inflation plus 3%.

      It's worth noting all the above scenarios assume inflation is positive (prices rising). It's not yet known what would happen in a period of deflation (prices falling). It's also worth noting that if inflation is above the 'prevailing market rate' - meaning it's costing more than other typical commercial loans - the Government will step in and cap the interest rates students are charged.

    The rate you pay changes each September, and uses the previous March's RPI inflation rate.

    In March 2022, RPI was at 9%. But as this was unusually high, the Government decided to temporarily cap student loan interest. It's currently 7.6% from January 2024.

    In practice, student loans are interest-free for many

    I'm no fan of the fact that students aren't just being charged for their education, they also pay for financing it with above-inflation interest.

    Yet that's a principled stance. Being charged interest isn't the same as needing to repay it. In practical terms for lots of graduates, especially those who never become high earners, they'll never end up repaying any interest, so it's meaningless.

    • Plan 2 interest rate in previous years

      The rates shown in the table below are the maximum for each period. As explained above, depending on your income, the interest rate you were charged might have been lower than the maximums shown.

      Plan 2 interest rates in previous years

      Date Interest rate
      1 December 2023 to 1 January 2024 7.5%
      1 September to 1 December 2023 7.3%
      1 June to 31 August 2023 7.1%
      1 March to 31 May 2023 6.9%
      1 December 2022 to 28 February 2023 6.5%
      1 September 2022 to 30 November 2022 6.3%
      1 March 2022 to 31 August 2022 4.5%
      1 January 2022 to 28 February 2022 4.4%
      1 October 2021 to 31 December 2021 4.1%
      1 September 2021 to 30 September 2021 4.2%
      1 July 2021 to 31 August 2021 5.3%
      1 September 2020 to 30 June 2021 5.6%
      1 September 2019 to 31 August 2020 5.4%
      1 September 2018 to 31 August 2019 6.3%
      1 September 2017 to 31 August 2018 6.1%
      1 September 2016 to 31 August 2017 4.6%
      1 September 2015 to 31 August 2016 3.9%
      1 September 2014 to 31 August 2015 5.5%
      1 September 2013 to 31 August 2014 6.3%
      1 September 2012 to 31 August 2013 6.6%
  7. Get your application in before the deadline to ensure the cash is in your bank when you start

    If you're a current English undergraduate returning to university in September 2023, the deadline to submit your student finance application was 23 June.

    This is to ensure you get the money in your bank account by the start of your course in September. You can still apply up to nine months after this date, but you aren't guaranteed to have the money by the time you start back at uni, which can make budgeting difficult.

  8. You can borrow for living costs too, but be warned – for most this is all about your parents' income

    Full-time students can take out a loan to pay for their living costs, such as, food, books, accommodation and travel. They're known as maintenance loans, and are usually paid in three termly instalments direct to the student's bank account. 

    The loan is repaid in exactly the same way as the loan for tuition fees (9% of everything earned above £27,295 in the 2023/24 tax year).

    Yet not all is quite as it seems here.

    This is because the maintenance loan is means-tested, and the means-tested proportion has increased over recent years from a third to over a half. For almost every student under 25, this means-test is based on household income, which in practice means parents' income. If you're 25 or over, the means-test is based on your co-habiting partner's income (if you have one).

    Rather watch than read?

    This helpful little video gives you the lowdown on the parental contribution...

    Martin Lewis warns parents about their expected contribution to the student maintenance loan
    Embedded YouTube Video

    The size of the living loan depends on family income 

    In England, the maximum loan amount first depends on whether students live at home or go away to study (with an uplift for those studying in London). Within that, for most under-25s the amount is means-tested based on annual family residual income. The higher the income, the lower the loan. The loan amount starts reducing with family income of just £25,000/year. 

    However, if you're eligible for benefits, or there's one or more financial dependent children in your household or you've applied for supplementary support, your parents' income's assessed in a different way. Full info's available in the How you're assessed and paid guide.

    Here's how it works in practice, for English students returning to uni in 2023/24:

    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)

    £8,400

    Living away from home (not in London)

    £4,651 (2)

    £9,978

    Living away from home (in London)

    £6,485 (3)

    £13,022

    (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.

    Though the maintenance loan is based on parents' earnings, and there is an implicit expectation they'll contribute financially, the Government has refused to call it that, and I've campaigned hard to make it transparent (see my letter to Government). In a win for our campaign, the Government has finally accepted this needs to be made clear to students and parents, and the Student Loans Company (SLC) has agreed to update its website accordingly.
    To help you work out what parents need to contribute, I've made it simple for you, just type in your details into our parental contribution tool below.

    Of course, knowing what the parental contribution is doesn't mean parents can afford to pay it. Yet at least it lets you understand what amount is expected, and helps students and parents have an open dialogue on it.

    It's also worth mentioning that any money you give your child to go to uni (to help fund living costs or tuition fees) is exempt from inheritance tax. There are no limits to the amount you can give, as long as your child continues in full-time education or training.

    My biggest problem is the loan isn't big enough

    While most media outlets like to focus on the headline debt figures, in real terms the main issue most students face is that the loan isn't big enough. The amount of money to live off can barely cover accommodation fees in some circumstances.

    And right now, the rate of inflation is rising faster than maintenance loans are increasing. Therefore it's crucial to ensure there is a real focus on budgeting, and you don't spend the cash the first few weeks of term. Part-time jobs, any grants and extra cash from parents will all help. See Student MoneySaving tips for more on how to make the cash stretch further and try our student budgeting planner.

    You could get more living support if your family's income dropped for any reason

    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 2023/24 tax year will be at least 15% lower than it was in the 2022/23 tax year, you may be able to get more maintenance support by applying for something called a current year income (CYI) assessment.

    Quick questions:

    • How is the means-testing assessed?

      How much maintenance loan you get is dependent on your parents' pre-tax income (minus some calculations, eg, pension contributions and if they've another dependent child). If their combined earnings are above £25,000, they're expected to help top up your maintenance loan.

      One major flaw with this system is that it doesn't take into account parents' expenditure and ability to pay. It only reduces the amount of your household income it uses to assess your maintenance loan size by £1,130 if your parents have other dependants – which is trivial compared to the amount they might be paying out to support another child at university at the same time as you.

      This mostly affects middle-earning parents, as students from low-income families will get the full loan. As I've explained in my Are student loans broken? guide, parents are going to have to save for their children to go to university, and many have no idea.

      As a result, it's likely that students who would've otherwise stayed on will be forced to leave their courses because they simply can't afford them.

      The only times you won't be means-tested for the maintenance loan is if you're over 25 or if you've been supporting yourself for at least three years before you start university (for example, if you've had a full-time job).

    • Can students force parents to give them the money?

      The short answer is: no. Parents can't be forced to pay, regardless of whether that's because they can't afford to, or they just don't want to. I said in my blog on expected parental contributions (see that for more in-depth info) that this creates an unfair situation for the student – either they should be treated independently or they should be able to make their parents pay up.

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

      You can apply for independent status, which means your parents' incomes won't be taken into consideration, if you meet one of the following criteria:

      • You're estranged from your parents, meaning 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 have supported yourself for at least 36 months (three years) before your course starts, although those months don't have to be consecutive. You will need to show proof of your earnings and that you've made enough to support yourself.
      • You've been in local authority care for at least three months after your 16th birthday, 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.

    • 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.

  9. Student loans DO NOT go on credit files

    When you borrow from a bank for a credit card, loan or mortgage, to evaluate whether they'll make money from you lenders look at three pieces of information – your application form, any previous dealings they've had with you and, crucially, the information on your credit reference files (full info: How Credit Ratings Work).

    Most normal financial transactions and credit relationships you have are listed on these files – yet student loans are not included.

    So the only way loan, credit card or mortgage providers know if you've got a student loan is if they choose to ask on application forms. They can do this and it happens, but in general it's only for bigger value transactions such as mortgages.

     For more info, see Student loans and your credit file.

  10. Student debt can impact your ability to get a mortgage, but not as much as people think

    I know many parents worry that now we have £9,250 tuition fees, the subsequent 'debt' will hit their child's ability to get a mortgage after studying.

    Of course, having a student loan is worse than not having one when it comes to getting a mortgage, though going to university often results in earning a higher salary, which usually cancels this out.

    Many worry about the "huge debt" putting lenders off. Actually, that isn't a problem as student loans don't appear on your credit file, so the impact isn't really about whether you'll be allowed a mortgage or not.

    Where it does impact is in the affordability checks which establish whether you can afford to make repayments on a mortgage. Of course, as you have lower take-home income with a student loan, that means you'll be assessed as being able to make smaller repayments. For full help, see Student loans and mortgages.

  11. You can repay student loans early

    In the early days, the Government was consulting on penalties to stop people repaying early, but the mass of feedback (including our no to penalties submission) was against, and thankfully it decided to scrap the idea.

    Yet this doesn't mean you should pay them off early, just because it's allowed. While in general we encourage people to repay their debts as quickly as possible, student loans are one of the rare cases where that will be a bad decision for some people.

    This is because under the new system many won't fully repay before the debt's wiped. Overpaying each month could actually be worthless – as the overpayment's not reducing the amount you'd need to pay back at all.

    Even if you've enough cash to clear the loan in full, it may not be worth it as your repayments primarily depend on what you earn, not what you borrowed. It could mean you need to repay less than what you owed.

    For more info on repaying your Plan 2 student loan early, see our dedicated guide: Student loan interest is at 7.6% - should I panic or pay it off?

  12. The very highest earners aren't the very highest payers

    Throughout this guide I've explained that the more you earn, the more you repay. Yet a quirk of the system means technically, beyond a certain point, that's not true.

    In truth, for the huge majority of people this isn't relevant – so feel free to skip this technical point – but I add it in for technical correctness and because from a political perspective it is worth examining.

    This quirk happens because seriously high earners pay off so quickly they have less time to accrue interest. If we take a ludicrous example to prove the point, if someone earned a billion pounds in their first month of work, they'd have cleared the debt in one month, so no interest would've accrued.

    Of course they still repay far more in total than low earners, but it does mean rather perversely that very, very high earners repay less than high earners.

  13. The student loan isn't a debt. If we changed its name to the more accurate 'graduate contribution', this mythbusting guide would be less needed

    The name 'student loans' frightens people. They scare the risk averse, which tends to especially include those from non-traditional university backgrounds, off going to university. They make parents do silly things like borrowing on their expensive mortgage so their child won't be 'in debt'.

    Even worse, it means many students have lost the fear of debt, and ended up taking out credit cards or payday loans – after all, if the Government enforces you to 'borrow', what can be wrong with it?

    Yet the truth is what we call a student loan isn't really a debt like any other, in fact it acts far more like a tax than a loan. After all...

    • It's repaid through the income tax system.
    • You only repay it if you earn over a certain amount.
    • The amount repaid increases with earnings.
    • It does not go on credit files.
    • Debt collectors will not chase for it.
    • Bigger borrowing doesn't increase repayments.
    • Many people will continue to repay for the majority of their working life.

    But in reality it isn't a tax, it's more of a contributory contract. In effect though, it's somewhere between the two.

    Time to change the name

    So if we're looking for a name for this hybrid form of finance, let's try "contribution", as used in Australia. Below are a few key student loan facts where I've changed the word 'repay' to 'contribute', and suddenly they make more sense:

    • You need only contribute if you earn enough (£27,295 in a year) once you graduate.
    • Your contributions are taken via the payroll.
    • The more financially successful you are, the more you will contribute in total.
    • If you don't earn enough, you don't have to contribute.
    • You only have to contribute for 30 years.

    Suddenly this fear of debt looks ridiculous. Would a student say: "I'm not going to university, because if I'm a high earner afterwards they'll ask me for a contribution to my education." Of course not. They'd relish the financial success, and be assured that if they didn't do too well, they wouldn't contribute as much or even nothing at all.

    The same is true of parents. Many say: "I'm worried my child will be £50,000 in debt when they leave university, I will do all I can to prevent it." However, I've never heard anyone say: "I'm worried my child will earn enough to be a higher-rate taxpayer after university, I'm saving up now to pay their tax for them."

    Let's take this a step further, and put the 'contribution' within the model of income tax. Take a look at this table:

    Equivalent 'marginal' (1) tax rates for graduates under 2012+ system

    Earnings up to £12,570 No tax – this is within your 'personal allowance', the amount earnable before income tax starts, and under the national insurance threshold
    Earnings over £12,570, up to £27,295 32% tax and national insurance
    Earnings over £27,295 up to £50,270 41% due to addition of student loan repayments
    Earnings over £50,270, up to £124,140 51% due to addition of higher-rate tax, but drop in national insurance (2)
    Earnings above £124,140 56% due to higher-rate tax (2)
    (1) 'Marginal' means you only pay the specified tax rate on that portion of salary. For more, see the Tax Rates guide. (2) Earn above £100,000 and your personal allowance will also be affected.

    I've been campaigning to get the name changed, including meeting with the Universities Minister. For further arguments on this, see my Student loans aren't a debt editorial. Most recently, at a Conservative party conference the Universities Minister agreed with me that student loans should be called 'graduate contributions'. We'll update this guide with any further developments.

  14. Student loans should be counted as part of students' income

    Many school leavers go straight to university with their parents or grandparents yelling "STICK TO A BUDGET!" Yet that simply isn't enough info. Think about this for a moment:

    A working person shouldn't spend more than they EARN.

    What shouldn't a full-time student spend more than?

    It's this piece of the budgeting jigsaw many people miss, but it's crucial – without knowing your income, you can't budget.

    I'd define a student's income as the student loan, any grant, any income from working and any money given by parents or relatives.

    Total that up, and this is what you should budget not to spend more than.

    It's important to note that while this does include the student loan, it doesn't include 0% overdrafts, which at best should be seen as an aid to cash flow but not income (see our Best Student Accounts guide) or any other commercial debt.

  15. Warning. This is how it works now. Sadly it can be changed – even retrospectively

    So now you understand it, the obvious question is: "How fixed is all this?"

    The Government has already sold off the remaining £40 billion of old student loan debt it has – a concern to many of the over four million uni leavers since 1998 with outstanding loans. In itself that can't change the terms and structures of the way the loans work, but it can change operating practices which may be a pain in the neck for some.

    Yet it's important to understand Parliament is 'omnicompetent' – in other words, it's completely free to make and change rules made in the past. This means there is no 100% guarantee the system will remain unchanged for the 30 years until you're clear. It's worth being aware this is a risk factor.

    In the past, it has always been thought that retrospective changes to the system go against natural justice and it hasn't happened – after all, each time a new student finance system has been introduced, it has only applied to new starters.

    Yet that sacred trust was breached in November 2015, when the Government froze the repayment threshold for all those who started in 2012 and beyond – the threshold was meant to be increased. This effectively hiked the cost of student loans above what people had thought they would be when they started university. That shouldn't happen – no commercial firm would be allowed to do this.

    The student loan repayment threshold was then increased from £21,000 to £25,000 in April 2018 as part of a wide-ranging review of student finance. It increased yet again to £25,725 in April 2019, £26,575 in April 2020 and to £27,295 in April 2021.

    However, the government has frozen the repayment threshold at £27,295 until April 2025. This freeze would mean students earning above the threshold would pay around £113 more per year than they would have done if the threshold had risen by 4.3%, as it was supposed to.

    The Government still refuses to enshrine many elements of student loan rates into statute – meaning it can change rates without a vote in the House of Commons. This is a very worrying situation, as it means it is difficult to trust the system. But unfortunately if you want to go to university you've got no choice.

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