By Iraz Akkus
A new repayment plan was introduced in September 2023, changing the terms of student loans for future university applicants. This loan change was announced in March 2022.
The shift in policy is due to a long-term governmental response to the 2019 Augar review of post-18 education, an independent review into the overall value of university, specifically covering the financial debate for stakeholders. The findings ranged from dropping university fees and the need to increase funding for higher education, to extending the repayment tenure post-graduation.
Moving from Plan 2 to Plan 5, there are key structural changes that will weigh heavily into the overall financial decision a student makes when choosing to attend university.
The maximum term – the length before which loan repayment is written off – has been extended by another decade, from 30 to 40 years of repayment; meaning students will be expected to pay back the borrowed loan for much longer during their professional lives.
These changes in government policy were enacted to soften the projected amount of student loans, which in the 2022/23 term surpassed the £200 billion mark. The new repayment window is predicted to ensure an estimated 52% graduates pay in full from a previous 23%.
This increase in the maximum term is also due to the decrease in the threshold income from £27,295 to £25,000. This threshold will be adjusted to only RPI, instead of the previous RPI with up to an additional 3%.
Many deem this as the most popular change being made in Plan 5 because as former education secretary, Michelle Donelan, has stated, “It will mean that any student graduating in the future won’t pay any more in real terms than they borrowed.”
However, there has been firm pushback on the newly introduced reforms and the disproportionate effects it is likely to yield. Branwen Jeffreys, education editor for the BBC, has pointed out the highest earners are estimated to pay back 26% less – as they stand to pay less in interest in total by being able to clear their loan quicker and in larger chunks.
A third year Economics student has expressed how the changes have impacted his younger brother’s financial decision making when considering applying for LSE next year.
He stated, “As the new repayment scheme is another elevated cost to consider after graduating, my brother has been evaluating whether degree level apprenticeships are going to be better value for money.”
The Institute for Financial Studies (IFS) has also stated that lower and middle earning graduates will be negatively impacted by the alterations. Save the Student has similarly coined the government’s plans as the “most regressive” changes to the current system.
