Students starting university in England in September 2023 could end up paying thousands of pounds more to study than those in the year above. The 2023 intake can expect to spend longer paying off their debt and face higher monthly payments once they start earning.
New changes, first announced by the government in February 2023, will drastically alter how new students repay their loans by delaying the point at which the debt is written off and decreasing the salary a graduate will need to earn before having to make repayments.
How are student loans changing?
While current students will repay their debt through what is known as a Plan 2 loan, new students will have a Plan 5 loan. Graduates who started university before 1 September 2012 will likely be on a Plan 1 loan. In this article we will focus on the difference between Plan 2 and Plan 5, but you can read about the other repayment schemes in our article ‘Student debt: What you need to know about repaying your student loans’.
The first main difference between Plan 2 and Plan 5 is the point at which you start paying the loan back. Someone on a Plan 2 loan will pay 9% of their pre-tax income above the threshold of £27,295, while the threshold is £25,000 for Plan 5. This means that if you earn £30,000 a year, you would pay £243 a year on Plan 2 and £450 a year on Plan 5. If you earn £27,000 a year, you will pay back nothing on Plan 2, but £180 on Plan 5.
The other major difference is the increase in the maximum term. Graduates on a Plan 2 loan will see their debt written off after 30 years from the April after they complete their course. For those on a Plan 5 loan, it will be 40 years. According to the government, the majority of people repaying a student loan taken out since the last major overhaul, which took effect in September 2012, are not expected to repay the full sum by the time the debt is written off. The September 2023 changes are intended to make clearing the debt before it is written off more likely.
There will also be an adjustment to the interest rate paid on the loan. Interest on the Plan 2 loan is capped at the RPI (retail price index) inflation figure, plus 3%. New students repaying a Plan 5 loan will be charged an interest rate the same as the RPI figure, without the extra 3%.
You can see a summary of the key changes to the system in this table.
| Starting year | Threshold | Cut off | Interest |
| 2022 | £27,295 | 30 years* | RPI+3% |
| 2023 | £25,000 | 40 years* | RPI |
*From the April after you leave
What do the changes mean for graduates?
Shortening the repayment period on a loan leads to paying less interest overall, while lengthening the repayment period will lead to a greater overall cost. The loan term stretching to 40 years will burden many graduates with an extra 10 years of repayments, taking them into at least their early 60s in most cases. The additional decade will also be ten more years of interest payments. Whether this will be balanced out by the reduction in the interest rate will depend on how much you earn and whether you make any overpayments.
The graduates least affected by the changes – other than those who paid their student fees upfront – will be high earners able to pay off their loan before year 30. The extra ten years will not affect them if their debt has already been cleared, but they will benefit from the reduced interest rate. Despite this, the lower threshold will still mean they pay more per month initially.
The most affected graduates will be those on middle incomes – earning too much to be under the threshold, but too little to clear the debt after 30 years. They will likely pay more overall than if they had started university in 2022.
How much does it cost to go to university in 2023?
The Department for Education has claimed that the new changes will mean “more than half of borrowers will repay their loans in full, compared to the current rate of 20 per cent”. However, it is important to keep in mind that how much any individual repays is based both on their earnings and the interest on the loan. This means that even if a loan is not repaid in full, a graduate may still be paying out much more than they initially borrowed.
Trying to estimate the total cost of going to university, under any of the student loan plans, is just that – an estimate. The only guarantee is that the new system will increase the amount new graduates initially pay per month. Exactly how much a graduate might pay overall will be decided by their earnings, RPI, their life circumstances and the government policy of the next 40 years – all factors which are impossible to predict accurately.
Additionally, Plan 2 graduates who started university from September 2012 will see their repayment threshold frozen until 2025 at the earliest. This goes against the initial premise of the threshold, which was due to rise with average earnings. These retroactive changes to the initial conditions of the Plan 2 loan shows that student debt terms can evolve after the graduate has started paying it back. It is impossible to know how much university will cost if you take out a student loan because you do not know how much you will earn, what the rate of interest on the debt will be or how future governments will change the loan terms.
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