In a recent blog post, Martin Lewis discussed the changes in student loans and, in the wake of how costly they have become, urged people to have a “deep breath and a serious, practical look at whether it is right or not, or if there are other better options.”
While the money saving expert doesn’t want to put people off going to uni and says it can be “life enhancing” and lead to increased earnings potential, he said we must understand the impact on our pockets which is “radically different” to what we hear.
Lewis said: “At the start of the 2023/24 academic year, we saw the biggest shake up to student finance in England for a decade. On the surface the changes looked like a tweak, but in practice it increased the eventual cost of going to university by over 50% for many typical graduates. Of course, that’s not what you want to hear, but it’s a fact.”
He then issued advice for new English resident first-time undergraduates, including those that started in 2023.
Student loan considerations for first-time undergraduates in England 2024
Your repayment is more important to understand than the cost of the loan
Lewis warned that while tuition fees are paid for you by the Student Loans Company and typically, the combined loan for tuition and maintenance can be over £60,000 by the end of a course, what actually counts is what you repay.
For students that started last year or start later this year, repayments should only begin once university has ended. Until you earn over £25,000 a year, you don’t pay anything.
However, once you earn above that amount, you repay 9% of everything earned above that amount, meaning that the more you earn, the more you repay.
This loan is wiped after 40 years, whether you’ve paid anything towards it or not, meaning that many people will be repaying their student loans for most of their working lives.
However, these payments are only taken via the payroll, just like income tax and the debt doesn’t impact your credit rating.
Your maintenance loan amount depends on parental income
Students in England are eligible for a loan to help with living costs, known as a maintenance loan. However, according to Lewis, for most under-25s, this loan is dependant on family residual income which he states is often proxy for ‘parental income.’
He said: “The loan received starts to be reduced from a family income of just £25,000 upwards, until around £65,000ish (it depends whether you live at or away from home and whether in London) where it’s roughly halved.
“This missing amount is effectively an unsaid parental contribution – as the only reason you get less is because your family earns more.”
For 2024 starters, the FULL annual loan is:
- £8,610 if living at home.
- £10,227 away from home.
- £13,348 away from home in London.
The MoneySavingExpert website has a Parental Contribution Calculator if you’re struggling to calculate what the parental contribution is expected to be.
Lewis acknowledged that some parents won’t be able to fill that gap, and can’t be forced to pay but encouraged students and parents to have this conversation sooner rather than later to plan for the future.
Lewis said: “While the media often focuses on tuition fees, I hear more practical complaints from students about the living loan – many find even the maximum loan isn’t big enough.
“And this has got worse as the living loan has not been uprated close to the increase in inflation during the cost of living crisis (something I wrote to the Chancellor to try to get change on – I failed).”
He added that when students are deciding where to study, they should look at all the costs, transport, accommodation (including whether university halls are an option), as all of these things should be a key part of the decision.
Think of the amount you borrow as more like a tax
In something that Lewis describes as “turning the way you think about student loans on its head”, student loans don’t really work as loans and Lewis said he actually argues that they should be called ‘graduate contribution systems.’
He explained that what you pay back depends solely on what you earn. it’s set at 9% of everything earned above £25,000. Lewis then offered the following example:
For a graduate who earns (for the sake of easy numbers) £35,000...
- Owe £20,000 and you repay £900 a year
- Owe £40,000 and you repay £900 a year
- Owe £60,000 and you repay £900 a year
- Let’s be ridiculous and say tuition fees have been upped to £1m a year, so you owe £3m+, you still ONLY repay £900 a year
He added: “So how much you borrow DOESN’T impact what you repay each month or each year. The only difference it makes is whether you’ll clear the borrowing within the 40 years before it wipes.”
Lewis said that the 52% on the new loan system will clear debt in full within 40 years, and 48% will be paying off their loan for the full 40 year period. This means that unless you’re likely to be a mid-high earner, there’s no point thinking in terms of what you ‘owe.’
It’s predicted that 52% on the new loan system will clear their debt in full within 40 years, and 48% will be paying off their loan for the full 40 years. So, unless you’re likely to be a mid to high earner (or don’t take the full loan or have access to large amounts of spare cash) don’t overly focus on the amount you ‘owe’.
However, this could all change
Frustratingly, while this can be quite complex to comprehend, it could all still change. Lewis said: “Student loan terms should be locked into law, so only an Act of Parliament can negatively change them once you’ve started uni – but, they’re not. And a few years ago we saw a very bad change imposed, though thankfully after much campaigning it was overturned.
“Most of the past changes were about the repayment threshold (the £25,000) rather than bigger structural issues, and indeed I would view the repayment threshold as ‘variable’ – meaning it can be changed at the whim of administrations.”
I think I need a lie down.