Martin Lewis issues warning to anyone starting university this year

Student loan repayments to begin earlier and over longer period under rule changes

TV personal finance expert Martin Lewis has issued a warning to A-level students planning to enter higher education this September.

A significant change to the rules surrounding student loans coming into effect this year means that future graduates will be required to start paying the money back once they begin earning salaries of more than £25,000, down from the current £27,295.

On the latest episode of his BBC podcast, the consumer guru took a call from a prospective student named Pierre wondering whether he should use his own savings to pay for his tuition fees, accommodation and expenses or apply for a loan to cover it, as is more typical.

Mr Lewis answered: “There are seismic changes coming to English universities funding this September for new starters only – those already at university, this does not apply to. And those changes will, for most people, substantially increase the amount that you pay for your higher education.

“Not while you are at university but once you leave university and I think there will be many cases of people under this new system paying double what they would have paid under the existing system right now.”

He explained that this year’s freshers will end up paying nine per cent of everything they earn over £25,000 towards student loan repayments and will start paying more at every level they earn, akin to taxes.

Mr Lewis added that, while graduates currently pay back their loans until it is either cleared or after 30 years have passed, whichever comes first, that end date will be extended to 40 years from September.

“Now in practical terms, that means most new starters from 2023 will be repaying the loan for pretty much all of their working lives, until they hit retirement,” he continued.

“And if you’ve still got a high retirement and you’ve been a mature student you’d be paying in that if you’re earning over the £25,000 or whatever that threshold increases to.

“The next – and the one positive change – here is, currently, the interest that is added to your loan account is inflation, RPI inflation – the higher rate – plus three per cent while you’re a student.

“Under the new system, it is just at inflation, which, you can argue, means there is no real cost to the funding of your education because if you borrow a shopping trolley’s worth of goods, of money, you would repay the same shopping trolley’s worth of goods in whatever that would cost you in the future.”

He added that, for every £1 of funding in higher education from the loan system, a student pays back 56p and the government 44p under the current system.

Once the changes come into play, that ratio changes to 81p for the student and 19p for the state, with the government hoping to raise the current rate of complete repayment from just 23 per cent to 52 per cent.

Returning to Pierre, Mr Lewis told him: “I would think carefully about the opportunity costs of paying your fees upfront now compared to will you need that money later.”

He suggested the caller might be better advised to keep his savings with one eye on a future housing deposit, pointing out that were calamity to strike and he were to lose his job in future, he would be able to simply pause student loan repayment by virtue of not making enough money to meet the earnings threshold, whereas, with a mortgage, he would risk falling into arrears.

Mr Lewis is a tireless presence on British TV and radio, serving up sound advice and compassion throughout the cost of living crisis during his appearances on his weekly ITV show, via his BBC podcast, his MoneySavingExpert website and newsletter and through his regular media interviews.

No concern is too small to warrant his attention and he has most recently offered tips on everything from paying your energy bills by direct debit, tackling broadband price hikes, securing good deals on travel insurance and cheaper ways to dry laundry in winter.

He was rewarded for his efforts at the National Television Awards in October 2022 when he was named Most Popular TV Expert.