The way student loans are going to be repaid is changing as of September.
This announcement has caused uncertainty as to who this will apply to and what the changes are.
With hope to help some of the confusion, here are some things you may need to know about the new changes.
What are the new changes?
The new change consists of three new steps in place which will affect new students in the long run.
Originally, the repayment of student loans threshold was at £27,000 which is now dropping down to £25,000 as of September.
This essentially means you will be paying more back each year if you’re earning over £25,000 per year.
Graduates will be paying back more than previous years as they will still be paying 9% of their income each month after graduating.
Another change coming into place is that instead of the repayment going over 30 years, this will now be increased to 40 years.
This will mean that graduates will be repaying their loans for the majority of their working lives.
The third and final change is that the interest rates are changing.
The interest rates are being cut so that you are only paying the RPI rate instead of RPI plus 3% which is what it is currently.
In short, this means graduates won’t be paying any added interest.
Martin Lewis, CEO of the Money Saving Expert, discussed this issue on Good Morning Britain last week and what students can expect.
Wow – quite incredible how this clip took off last week. I have done this before in detail on my show, but it seems as we’re nearing the time of the change, it is getting more pressing. https://t.co/AnnzgnKxAp
— Martin Lewis (@MartinSLewis) May 9, 2023
Who will be affected?
This plan will only affect new student who will be starting in September which is when this will come into affect.
The new plan won’t affect any current students that are currently studying or who will be graduating soon.
Will this affect those in different student finance plans?
This change will not affect anyone on previous loans which is generally the Plan 2 loans.
Plan 2 loans apply to students that started their course between September, 1 2012 and July, 31 2023.
From now, each new student will be on Plan 5 where these changes come into place.
This means that any current graduates or people within their first, second or third year at university won’t be affected by this.
Does this mean payments will be higher?
Long term, this means that graduates will be paying more over a longer period of time.
If you earn over £25,000 you will be paying 9% of your income past the threshold for monthly wages which is £2,083 per month.
This statistic comes before tax.
You can find out more about what you would be paying through the government website.
Featured image: Unsplash – Tim Gouw