New students could face paying back almost twice as much as before under new student finance system

Students starting university in England this year will be potentially paying back double what recent graduates are predicted to pay under the previous student finance system. 

The new repayment ‘Plan 5’ will see graduates pay back, on average, £19,000 more than graduates under the previous ‘Plan 2’ system. 

This figure was calculated based on the average graduate starting salary of £24,000, and the average graduate debt of £45,000. Recent graduates on the Plan 2 repayment system are forecast to make repayments of around £24,000 before their debt is automatically wiped 30 years after graduating. 

However, this is set to change under the new Plan 5 system with the new period for wiping off loans extended to forty years. This meansthe Class of 2026 onwards could be facing, on average, repayments of around £43,000across 37 years before their balance is fullyrepaid.

Dan Whittaker, personal finance expert at CashLady.com, has outlined the key changes to the student loan system which will affect those starting university this year, as well as information for graduates who may have overpaid their student loan.

How will changes to student finance affect students starting university this year? 

“According to gov.uk, a new repayment plan, known as ‘Plan 5’, has been introduced. This will affectnew undergraduates from 1st August 2023, as well as students on courses funded by an Advanced Learner Loan. This means that students starting university this September and October will be affected by the change.

“Previously, Plan 2 graduates began to make repayments when they were earning above £27,295* a year. Under Plan 5,the threshold has been lowered, and graduates will now be required to make repayments if their annual income isover £25,000 a year. 

Repayments will total 9% of a graduate’s income above £25,000 a year. This is illustrated in the table below.”

Salary	Annual Repayments
£24,000	£0
£26,000	£90 (9% of £1,000)
£30,000	£450 (9% of £5,000)
£40,000	£1,350 (9% of £15,000)

“Effectively, this means that graduates will be repaying more of their loan each year and from earlier on in their career. Repayments towards a Plan 5 student loan will not be expected to be made until April 2027 at the earliest, even if you leave your course early. 

“New students will be required to pay their student loan off for longer than previous cohorts, with the period for repayments extended from 30 to 40 years, at which point any remaining debt will be wiped.”

How can I receive a refund if I am a current graduate and have made a student loan repayment unnecessarily? 

“According to Save the Student, over 850,000 graduates made unnecessary student loan repayments during the financial year 2021/22, at a value exceeding £100 million, with just 2% of those students having claimed a refund. 

“You can ask for a refund if you have paid more than the total amount you owe; your annual income was below the income threshold; you started making repayments before you needed to; or because you’ve have been incorrectly listed on the wrong repayment plan in PAYE.

“If you have overpaid your total student loan and have a credit balance on your account you will either be automatically issued a refund or be contacted by the Student Loans Company. If you have overpaid for another reason, you will need to contact the Student Loans Company with your customer reference number to request a refund.”

CashLady.com has outlined key changes to student finance and how you can apply for a refund if you have incorrectly made a student loan repayment as a graduate.