Martin Lewis Sounds Alarm Over Student Loan Repayment Changes Affecting Millions
Consumer finance champion Martin Lewis has issued a stark warning to an estimated 5.8 million British graduates, cautioning that upcoming changes to student loan repayments will disproportionately impact those on middle incomes. The Money Saving Expert founder described the government's planned adjustments as "unfair to all" in a detailed blog post, highlighting how fiscal measures announced in the November Budget will affect those who began university between 2012 and 2023.
Threshold Freeze Creates 'Fiscal Drag' Effect
The central concern revolves around Chancellor Rachel Reeves' decision to increase the Plan 2 student loan repayment threshold to £29,385 in April 2026, then freeze it at that level for three years until 2030. Currently, graduates repay 9% of earnings above £28,470, but this adjustment means those whose wages increase with inflation could be pushed over the threshold, while those already above it will pay a higher percentage of their income.
"Assuming prices and average earnings rise, the threshold won't, so a bigger proportion of Plan 2 income will go towards repaying the student loan," explained Martin Lewis, characterising the mechanism as a form of "fiscal drag" that particularly disadvantages middle-earning graduates.
Who Will Be Most Affected?
According to Lewis's analysis, graduates earning from just above the threshold up to mid-level salaries will bear the brunt of these changes. Unlike higher earners who might eventually repay their loans in full, these individuals face continuing payments until the 30-year write-off point without ever clearing their debt entirely.
The Institute for Fiscal Studies estimates outstanding Plan 2 debt at £213 billion, with most borrowers never repaying the full amount. This freeze increases expected lifetime repayments for a 2022-23 graduate from £52,600 to £55,800, adding significant financial pressure during a cost-of-living crisis.
Understanding Your Student Loan Plan
With multiple repayment plans operating across the UK, graduates should verify their specific arrangement through their online student finance account. The primary categories include:
- Plan 1: For English or Welsh students who began undergraduate courses before September 2012, or Northern Irish students who started between 1998 and present.
- Plan 2: Affects English students who began undergraduate or PGCE courses between September 2012 and July 2023, and Welsh students starting on or after September 2012.
- Plan 4: Applies to Scottish students who started university between 1998 and now.
- Plan 5: For English students beginning undergraduate or PGCE courses on or after August 2023.
- Postgraduate Loan: Covers master's, postgraduate or doctoral degrees for English or Welsh students.
The Interest Accumulation Problem
Compounding the issue, Plan 2 loans accrue interest linked to the Retail Price Index (RPI) inflation rate plus an income-based addition. This structure means many graduates see their total debt increase despite making regular repayments over decades, creating what Lewis describes as a "morally questionable" situation where terms appear variable despite initial assurances.
In a direct message to the Chancellor during BBC Newsnight, Lewis stated: "I do not think it is a moral thing for you to do to be freezing the repayment threshold in this way... You didn't say the terms were variable. This isn't right. Please have a rethink."
Should Graduates Consider Overpaying?
Lewis advises extreme caution regarding overpayments, noting that student loans "don't work like normal loans." While seeing interest accrue faster than repayments might provoke anxiety, he warns that overpayments typically only benefit those with small total debts, rapid career progression, uninterrupted 30-year working patterns, or ability to contribute "multiple £10,000s" extra.
"Since you can't get overpayments back, doing so in haste could mean you've 'flushed that money away without any gain,'" he cautions, urging graduates to carefully evaluate their individual circumstances rather than making emotional decisions.
Campaigning for Change
The consumer champion points to successful 2015 campaigning that halted similar threshold freezes, urging affected graduates to write to their MPs protesting the government's decision. With millions facing increased financial pressure from these changes, Lewis maintains that collective action could prompt policy reconsideration, particularly given the significant impact on younger generations navigating challenging economic conditions.
