Money saving expert Martin Lewis has issued a stark warning to UK graduates, stating they will end up paying more for their student loans overall following new measures announced by Chancellor Rachel Reeves.
What is changing for student loans?
In the recent Autumn Budget, the Chancellor revealed that the repayment threshold for Plan 2 student loans will be frozen for three years. Currently, graduates repay 9% of everything they earn above £28,470. From April next year, this threshold will increase to £29,385, where it will then remain until 2028.
This freeze, instead of the threshold rising annually with inflation and wages, is estimated to generate an additional £400 million per year for the Treasury. The policy effectively means that as salaries gradually increase over the coming years, a larger number of graduates will be dragged into the repayment bracket or will pay back more each month.
Martin Lewis challenges the Chancellor
During his ITV programme, The Martin Lewis Money Show, the financial journalist directly questioned Chancellor Rachel Reeves on the rationale behind targeting graduates. Lewis explained the long-term consequence for individuals, stating: "So your income will go up, but that rate is frozen, so you will pay more each year on student loans. As most people on Plan 2 don't pay it off within the 30 years before it wipes, that means you'll pay more on your student loan in total."
In her defence, the Chancellor pointed to the need for a sustainable student finance system. She stated that the freeze was implemented in a similar way to other tax thresholds and emphasised that around 34% of Plan 2 student loans are not repaid at all.
Wider concerns for student finances
The announcement has sparked concern among student advocacy groups. Alex Gallagher, chief strategy officer at Unidays, described the Autumn Budget as "bittersweet" for students. While welcoming the rise in the hourly minimum wage for student workers, he highlighted that the student loan repayment threshold freeze will drive up repayments for current and future graduates, adding to the significant financial pressures they already face.
This change specifically affects graduates on Plan 2 student loans, which includes individuals who attended university in England and Wales between 2012 and 2023 and paid tuition fees of £9,000 or more per year.
