The National Union of Students (NUS) has warned that a three-year freeze on the salary threshold for loan repayments could leave new graduates struggling to afford food, rent and bills.
In Rachel Reeves’s budget on Wednesday it was announced that from April 2027, the salary at which graduates must begin to repay their student debt is being frozen at £29,385 for three years.
The measure applies to graduates with plan 2 loans. This group started courses in England and Wales between September 2012 and July 2023. The threshold is currently £28,470 for this plan.
Alex Stanley, the NUS vice-president for higher education, said the measure meant the salary a graduate was earning when repayments began could be “dangerously close” to the minimum wage.
“Graduates are already facing a challenging job market coupled with ever-increasing financial pressures from the cost of living,” he said. “With graduate jobs still being located in expensive cities, many new graduates will be making repayments while not being able to afford food, rent and bills.”
The national living wage (NLW) is set at £12.21 an hour for workers aged 21 and over and will rise 4.1% to £12.71 an hour next year. Based on a 40-hour week, the higher rate works out at about £24,400 a year.
However, future increases in the NLW could push some graduates in relatively low-paid jobs close to having to repay their student debt.
The Office for Budget Responsibility (OBR), the government’s spending forecaster, expects someone working full-time on the minimum wage to be earning about £28,995 come 2030 – about £400 lower than the student debt repayment threshold.
Student finance is made up of the tuition fee loan, which covers the course fees and is paid directly to the university, and the maintenance loan, which is designed to help with costs such as rent and food. These both need to be paid back.
When someone starts repaying their loan, and how much they pay, depends on the scheme they belong to. There are five plans for UK borrowers, which work in different ways. The scheme joined is determined by where the student lived when they took out their loan, when they started their course, and what they studied.
Once students earn over the salary threshold, 9% of their earnings are deducted to cover their student loans. Stanley said the freeze meant graduates would be “repaying more on their loans much sooner”.
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“Graduates should have time to find their feet, especially with the cost of living rising faster than wages, before having to be worried about ever-increasing debt,” he said. “This only affects students who had to take out loans to access higher and postgraduate education, meaning that those from financial privilege’s salaries stretch further.”
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. This does not increase the level of debt for these graduates.”
The government is also freezing the interest rate thresholds on plan 2 loan debt, which range from 3.2 to 6.2%.
The OBR estimated that the student loan threshold freeze would raise about £400m a year in the medium term “as a higher portion of income is subject to repayment and a higher interest rate”.
