Graduates Face Financial Strain as Loan Repayment Threshold Frozen
The National Union of Students (NUS) has issued a stark warning that a new three-year freeze on the salary threshold for student loan repayments could leave recent graduates struggling to afford essential costs like food, rent, and bills. The measure, announced in Chancellor Rachel Reeves's budget, will see the repayment threshold for Plan 2 loans held at £29,385 for three years from April 2027.
Repayments to Begin on 'Dangerously Close' to Minimum Wage
Alex Stanley, the NUS vice-president for higher education, stated that this freeze means the salary at which a graduate starts repaying their loan could be "dangerously close" to the national minimum wage. "Graduates are already facing a challenging job market coupled with ever-increasing financial pressures from the cost of living," he said. He highlighted that with many graduate roles concentrated in expensive cities, new graduates could find themselves making repayments while still unable to cover their basic living expenses.
The current "national living wage" (NLW) for workers aged 21 and over is £12.21 per hour, which is set to rise to £12.71 per hour next year. For a full-time worker on a 40-hour week, this higher rate equates to an annual salary of roughly £24,400. According to the Office for Budget Responsibility (OBR), by 2030, a full-time worker on the minimum wage could be earning approximately £28,995—just £400 below the frozen student loan repayment threshold.
How the Student Loan Repayment System Works
Student finance in the UK consists of a tuition fee loan, paid directly to the university, and a maintenance loan intended to help with living costs. Both must be repaid. The scheme a graduate falls under depends on where they lived and when they started their course.
For those on Plan 2 loans—covering students who started courses in England and Wales between September 2012 and July 2023—repayments begin once they earn over the threshold. At that point, 9% of their earnings are deducted to service the debt. The freeze means graduates will be "repaying more on their loans much sooner", according to the NUS.
Stanley emphasised that graduates need time to establish themselves financially. "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 argued. He also pointed out that this policy disproportionately affects those who relied on loans to access education, widening the gap with their more financially privileged peers.
In response, the Treasury defended the measure, stating that graduates "generally benefit from higher earnings" and that ensuring they repay more of their loan is "fair for those workers who have not gone to university". They also clarified that the freeze does not increase the overall level of debt for graduates.
The government is additionally freezing the interest rate thresholds on Plan 2 loan debt. The OBR estimates that the threshold freeze will raise an additional £400 million per year in the medium term.
