The government's decision to freeze the salary threshold for student loan repayments for three years has sparked a stark warning for millions of graduates across the UK. The National Union of Students (NUS) cautions that the move could leave new graduates financially squeezed, struggling to afford basic necessities.
What is the student loan rule change?
In its Autumn Budget, the Labour government announced a significant change to how graduates repay their student debt. From April 2027, the salary level at which graduates must start repaying their Plan 2 loans will be frozen at £29,385 for a period of three years.
This means that even if inflation and wages rise, the point at which repayments kick in will not increase. The government is also freezing the interest rate thresholds on this debt, which currently range from 3.2% to 6.2%.
Why is the NUS sounding the alarm?
Alex Stanley, the NUS vice-president for higher education, issued a strong critique of the policy. He argued that with the cost of living rising faster than wages, graduates need time to establish themselves financially before facing higher debt repayments.
"Graduates are already facing a challenging job market coupled with ever-increasing financial pressures from the cost of living," Stanley said. "With graduate jobs still being located in expensive cities, many new graduates will be making repayments while not being able to afford food, rent and bills."
He highlighted a particularly concerning consequence: the salary at which repayments begin could become "dangerously close" to the minimum wage, eroding the financial benefit of a university degree for many.
The financial impact and government rationale
The Office for Budget Responsibility (OBR) estimates that the freeze will raise approximately £400 million per year in the medium term. This is because a larger portion of graduate income will be subject to repayment, and at a higher effective interest rate.
In defence of the policy, the Treasury stated that graduates typically benefit from higher lifetime earnings. A spokesperson said, "Ensuring that they repay more of their loan is fair for those workers who have not gone to university. This does not increase the level of debt for these graduates."
However, the NUS counters that the policy disproportionately affects those from less privileged backgrounds who relied on loans to access higher and postgraduate education, while the salaries of their more affluent peers stretch further.
The coming years will test the impact of this freeze, as a new cohort of graduates enters the workforce facing this tightened financial framework alongside persistent cost-of-living pressures.
