Students are facing mounting financial pressure to fund their education, and recent modifications to the student loan repayment system will hit the lowest earners hardest.

Last September, three significant changes to loan repayments were introduced, affecting students who commenced their university studies in the 2023/24 academic year and onwards.

While no graduate will repay more than the amount borrowed in real terms, the changes mean lower earners will end up paying more under the new plan, whereas higher earners will pay less.

“The burden has been shifted from higher earners to lower and middle-income graduates,” says Tom Allingham, Communications Director at Save the Student.

“This is fundamentally unfair — those who earn more from their university degrees should contribute a larger share, and we shouldn’t be shifting this burden onto lower earners,” he adds.

UK nationals enrolling in undergraduate degree courses can apply for student loans to cover tuition fees and living expenses. Tuition fees vary by university and location within the UK. In England, fees are capped at £9,250, totaling up to £27,750 for a three-year course.

In Wales, fees are capped at £9,000, in Northern Ireland at £4,710, and in Scotland, the cap is £9,250, though Scottish and EU students are exempt from paying.

Maintenance loan amounts depend on your UK’s home country and household income. According to Save the Student, the average maintenance loan is around £6,116 per year.

Interest on your loan starts accruing immediately after you take it out. Repayments are 9% of income over the earnings threshold.

For students starting in 2023/24 and beyond, loans will be repaid under Plan 5, replacing the previous Plan 2.

The first notable change is the extension of the loan write-off period from 30 to 40 years, meaning longer repayment durations, potentially extending into the graduate’s 60s.

Second, the earnings threshold for repayments has been lowered from £27,295 to £25,000, frozen until 2027. Consequently, graduates earning over £25,000 will pay more per month under Plan 5.

The third change reduces the maximum interest rate. Under the old plan, interest included the retail price index (RPI) plus 3%. The new plan charges just the RPI, removing the additional 3%.

Kate Ogden, Senior Research Economist at the Institute for Fiscal Studies, notes that lower earners will be adversely affected, paying more on average due to the extended repayment period and lowered threshold, although the reduced interest rate benefits those who fully repay their loan.

Government forecasts suggest Plan 5 graduates will leave with an average of £43,700 in loan debt, compared to £45,600 for the final cohort of Plan 2 students.

Estimates from Quilter indicate that a graduate on a £30,000 starting salary would pay approximately £6,000 more under Plan 5 (£37,000 total) than Plan 2 (£31,000). Those starting at £40,000 would pay £11,000 more, while a £50,000 starting salary would mean paying £14,000 less. Graduates earning £75,000 would pay £6,000 less under Plan 5.

Repayments are higher under the new plan for both lower and higher earners due to changes in the earnings threshold. Graduates earning £30,000 will repay £450.37 annually under Plan 5, compared to £244.08 under Plan 2, while those earning £40,000 will repay £1,350.36, up from £1,144.45.

“Plan 5 increases pressure on students to repay,” says Ian Futcher, Financial Planner at Quilter. “More of their salary will go towards student loan repayments, stretching their finances further.”

Get more insights and expert advice on university applications in The Sunday Times Good University Guide 2024.