Financial expert Martin Lewis has issued a stark warning to UK graduates, stating that those with an annual income exceeding £29,385 will see their finances impacted by a major change unveiled in the recent Autumn Budget.
The Budget Change Explained
Chancellor Rachel Reeves has announced a plan to freeze the repayment threshold for Plan 2 student loans for the next three years. The move is designed to raise approximately £400 million per year for the Treasury. This change directly affects anyone who attended university in England between 2012 and 2023 and paid tuition fees of £9,000 or more annually.
Currently, graduates on a Plan 2 loan repay 9% of everything they earn over the threshold of £28,470. From next April, this threshold will increase to £29,385 and will then be frozen until 2028.
Why You'll Pay More
Appearing on his ITV programme, The Martin Lewis Money Show, Lewis explained the financial consequence for graduates. “So your income will go up, but that rate is frozen, so you will pay more each year on student loans,” he stated.
He elaborated with a crucial point: “As most people on Plan 2 don’t pay it off within the 30 years before it wipes, that means you’ll pay more on your student loan in total.” In essence, while the monthly increase might seem small, the total amount repaid over the lifetime of the loan will be higher for a significant number of people.
Government and Sector Response
When questioned on the show, Chancellor Rachel Reeves defended the policy, drawing a parallel to other tax thresholds. “So, we have frozen it in the same way that thresholds have been frozen for three years,” she said. “It was important at the Budget that we asked everyone to pay a little bit more.”
Justifying the need for the measure, the Chancellor pointed out that around 34% of Plan 2 student loans are not repaid at all, emphasising the government's aim to create a sustainable system of student finance.
The announcement has been met with concern from student-focused organisations. Alex Gallagher, chief strategy officer at Unidays, told This is Money that the Autumn Budget is “bittersweet for our student members.” While welcoming the rise in the minimum wage for student workers, he warned that the loan threshold freeze “will drive up repayments for current and future graduates, and further add to the financial pressures they face at university.”
