UK Student Finance Report
The Cost of Knowledge
A comprehensive analysis of the UK student loan landscape, focusing on the seismic shift from Plan 2 to Plan 5. Explore how frozen thresholds, longer terms, and interest rate changes are reshaping the financial future of graduates.
The “Graduate Tax”
Repayments function effectively as a 9% additional marginal tax above the threshold.
40 Years of Debt
New Plan 5 loans are not written off until 40 years post-graduation, up from 30.
Fiscal Drag
Frozen repayment thresholds mean more graduates pay more, earlier in their careers.
Interactive Impact Calculator
Understanding your monthly obligation is key to navigating the landscape. Use the slider below to estimate the immediate impact of student loan deductions on your take-home pay. This calculator assumes a standard Plan 5 threshold (£25,000) for new starters.
*Estimates for 2024/25 tax year. Includes Income Tax and National Insurance.
Where Your Money Goes
The “Middle Earner Squeeze”
The shift from Plan 2 (Pre-2023) to Plan 5 (Post-2023) fundamentally changes who pays for higher education. While interest rates are lower (no longer RPI + 3%), the lower repayment threshold and longer term (40 years) mean low-to-middle earners pay significantly more over their lifetimes.
Plan 2 (Pre-2023)
- ✓ Threshold: £27,295 (Frozen)
- ✓ Term: Written off after 30 years
- ✓ Interest: RPI + up to 3%
- ✓ Outcome: High earners pay huge interest; many never repay full capital.
Plan 5 (2023+)
- ✓ Threshold: £25,000 (Frozen until 2027)
- ✓ Term: Written off after 40 years
- ✓ Interest: RPI Only (No real growth)
- ✓ Outcome: High earners pay less total (no real interest); Middle earners pay for 10 extra years.
Estimated Lifetime Repayments
*Source Report Projection: Assumes typical salary growth. High earners benefit from Plan 5’s removal of real interest, while middle earners suffer from the extended term.
The Maintenance Gap
Beyond tuition fees, the immediate crisis for students is the “Maintenance Gap.” Maintenance loans have failed to keep pace with inflation (RPI), resulting in a real-terms cut. For many, the maximum loan no longer covers even basic accommodation costs, forcing reliance on parental support or part-time work.
The Shortfall
The average student accommodation now consumes nearly 90-100% of the average maintenance loan in major cities.
Parental Contribution
The system implicitly expects parental contribution, though this is rarely communicated clearly to families.
Key Findings & Future Outlook
Repayment Ratio
Under Plan 5, over 50% of graduates are expected to repay in full, compared to just ~20% under Plan 2.
Fiscal Drag
Thresholds are frozen. As wages rise with inflation, graduates are dragged into repaying sooner and more.
Interest Rates
Plan 2 interest is capped at RPI+3%. Plan 5 is just RPI. This removes the “compound interest penalty” for high earners.
Postgraduate
Masters loans (Plan 3) sit on top of undergraduate loans (6% extra), creating a marginal tax rate of 47% or higher for many.