Changes to student loans: how do they affect you?

Changes to student loans in England will hit lower-earning graduates even harder than first anticipated. We run through what these changes mean for students starting university in 2023, and how it'll impact their finances.

The government has announced changes to the student loan scheme that will affect many graduates in England in the coming years and could result in lower- and middle-earning graduates paying more.

The amount of time you have to repay the loan (called the 'loan repayment period') is being extended from 30 to 40 years. At the same time, the threshold for repayments is being reduced, so you'll have to start making payments from a lower salary. After 40 years from the start of your repayments, regardless of how much of the student loan has been repaid, your loan balances will be written off.

What are the changes and who will be affected?

Students starting university in the 2023–24 academic year and graduating in 2026–27 will be affected by the new rules. From 2023, the repayment threshold is going down from £27,295 to £25,000 so you’ll have to start making repayments once your salary is at the £25,000 level. This repayment threshold will be in place until 2026–27.

When it comes to interest rates on your student loan, under the current system, the rate is based on inflation RPI (Retail Price Index) plus up to 3% while you are at university, and then depends on your income once you graduate.

Proposed changes from 2026–27 mean the interest rate would be set using RPI, rather than average earnings. However, due to the surge in inflation along with rising interest rates over the summer, the government announced in August that it would cap student loan interest rates at 6.3% from September 2022. For students starting university in August 2023, their student loan interest rates will also be reduced.

What does this mean for student finances?

Your monthly repayments on your loan won’t necessarily change, because how much you pay back every month depends on how much you earn over the threshold. However, the length of the repayment period – and the extra thousands of pounds over a longer timeframe for people with large loans and lower-than-average salaries – could affect long-term financial goals, like buying a home.

It’s worth remembering that when it comes to applying for a mortgage, the status of your student loan won’t affect your credit rating. But a mortgage lender might take it into account when deciding how much you can borrow, as they need to know how much you will be able to repay each month.

Is university still worth it?

The short answer is likely to be yes. Figures from the Department for Education in 2018 show that graduates earned £10,000 more a year than those who didn’t go to university. Graduates aged 16–64 earned a median salary of £34,000, while those without a degree earned £24,000. There are gaps between how much different people earn, along with disparities between groups depending on their ethnicity and gender. But on the whole, a graduate will likely earn more.

Easing your debt on the way to your degree could be achieved by asking for monetary gifts from family, working during the holidays and being mindful about budgeting while you’re a student. Of course, a student loan can help with the cost of living and tuition, but it doesn’t need to be a debt hanging over you for life. You’ll only start paying off the loan once you’ve left your course and are earning over the repayment threshold we mentioned earlier. And if you’re unemployed, your loan repayments will pause until you’re working again.

What are your options if university isn’t for you?

There are no set rules about when to go to university. You might want to head straight into the workplace, apply for an apprenticeship, entry-level job, internship or other forms of training. This could help you gain skills and work experience – without the fees.

Some routes, like degree apprenticeships, give you the chance to combine the academic study of a university degree with the practical experience of an apprenticeship. A degree apprenticeship means your employer pays your tuition costs (and gives you a salary), although you will have to cover your living costs.

Another option is a foundation degree. This costs around £2,600 a year – but it makes up part of a full honours degree. It could help you prepare for a specific area of work by combining academic study and work experience. After you’ve graduated, you could either move into full-time employment or continue with a further year of study to turn it into a full honours degree.

There are many routes to helping you achieve your qualifications and future success. Planning, budgeting and thinking long term can help you on your journey.