- Students pay 9% of their wages over the earnings threshold
Student loan repayment thresholds are set to remain frozen for a further three years from April 2027, Chancellor Rachel Reeves announced in the Autumn Budget, meaning more low earners will start repaying sooner.
It means even those earning just over the minimum wage could need to start making repayments by 2030.
Those with Plan 2 student loans, who attended university between 2012 and 2023 and paid £9,000 or more for tuition each year, will continue to repay their loans once they pass the earnings threshold of £29,385.
Freezing the threshold instead of raising it each year as wages go up means that each year more people will begin repaying as salaries increase.
The freeze will also see graduates paying a larger part of their salary over the coming years as the amount they earn over the threshold widens.
The national minimum wage is set to increase by 4.1 per cent next year, meaning it will reach £12.71 an hour, equivalent to almost £24,800 per year for 37.5 hours per week.
By 2030, the minimum wage could reach £28,995, according to figures from the OBR
However, by 2030, the minimum wage could reach £28,995, according to figures from the Office for Budget Responsibility.
Alex Gallagher, chief strategy officer at Unidays, said: ‘The Autumn Budget is bittersweet for our student members; whilst we welcome the rise in hourly minimum wage for over 300,000 student workers across the UK, the student loan repayment threshold freeze will drive up repayments for current and future graduates, and further add to the financial pressures they face at university.’
This means that students earning just over the minimum wage – some £400 per year – will begin to repay their student loans.
Repayments are made at nine per cent on the earnings that go above the repayment threshold.
The Treasury said: ‘Graduates generally benefit from higher earnings, and ensuring that they repay more of their loan is fair for those workers who have not gone to university.’
The move comes amid a raft of threshold freezes, including income tax and National Insurance.
Ian Futcher, financial planner at Quilter, said: ‘Freezing the plan 2 repayment threshold is a stealth change that will inevitably increase the repayment burden on many graduates over the coming years.
‘The threshold has already failed to keep pace with inflation and wage growth, and this latest freeze means more people will find themselves repaying sooner and on a greater share of their income.’
‘This is about millions more pounds flowing to the Treasury from graduates who are not necessarily high earners.
‘Many individuals who previously would have sat below the threshold will now be pulled into repayments purely because the threshold has been held down while earnings rise.’
Figures from the Office for Budget Responsibility indicate that the freeze will net the Government some £400million each year in the medium term.
The change will also lead to a £5.6billion reduction in borrowing in 2026-27 related to reduced spending, the OBR said.
Plan 2 student loans were first introduced in September 2012, replacing Plan 1 loans which were for lower university fees. Plan 2 loans were replaced in September 2023 for new students entering university.
Futcher said: ‘Student loans were sold on the principle that repayments only begin once your degree pays off in the form of higher earnings. Freezing the threshold breaks that link.
‘Someone in a lower-paid graduate role may now begin repaying before they see any meaningful uplift in their standard of living.
‘That raises uncomfortable questions about fairness and whether the current system still reflects the original social contract between graduates and the state especially given the expense of degrees these days.
‘That’s not a great message for a country that says it values skills and future growth.’
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