An Employers Guide to the 'Plan 5' English Student Finance Loan

21/07/23

In this upcoming academic year, the new ‘Plan 5’ loans will launch for higher education starts which will see the biggest shift in Student Finance for over a decade. A shift that will see an increase in cost by over 50% for many graduates and even double it for others. Read below as we summarise the latest adjustments to the student finance loan system for 2023 undergraduate starters.

Paying back your loan

Tuition fees are capped at £9,250 and will continue to be until the 25/26 academic year. This isn’t usually paid directly but instead, it’s paid for by the Student Loans Company. This is unless they’re in the fortunate position to pay this upfront without getting a loan. Over a typical three-year course, the tuition fee and living costs can amount to over £60,000, which they’ll have to pay back. However, all that matters is what they repay. Below are the key facts you need to know;

They only repay when they earn over £25,000 (previously £27,295) – If they earn less, they don’t pay.
They repay 9% of everything earned above that threshold – the more they earn, the more they repay each month.
They only need to start repaying your loan in April after you graduate.
The loan will be automatically wiped after 40 years (previously 30) or if they die – if they don’t clear what’s owed earlier than this, it’s cleared. This realistically means they will be repaying their loan for the majority of their working life.
The loan is automatically repaid via payroll – Payment is taken via PAYE (Pay as you earn) meaning they’ll never need to make payments.
The student loan DOESN’T go on their credit file.
Graduates will still require to repay their loans if they move overseas.
Graduates can overpay for their loans if they have the funds.

Maintenance Loan

Both full-time and part-time students are eligible for living cost loans – known as maintenance loans. However, the amount they’re entitled to is entirely dependent on family income. For new starters, the loan they receive will gradually reduce the higher above £25,000 family income they have. If it’s below this, they’ll be entitled to the full maintenance loan. It could be seen as an unsaid parental contribution, as the only reason a student would get less is that their family earns more. For 2023/24 starters, the full loan is £8,400 if living at home or £9,978 if living away from home.

Loan Repayment

What is repaid each month depends SOLELY on what they earn. For 23/24 starters, it’s 9% of everything earned above £25,000. For example, if someone were to earn £35,000 per year, they would pay back £900 a year. Whatever the final loan amount is, whether it’s £10,000 or £100,000, they’d ONLY repay 9% of anything they earn over £25,000. The prediction under the new Plan 5 loans indicates that 54% of graduates will clear the loan within 40 years. The remaining 46% of graduates will pay for the entire 40 years.

Student Loan Interest

Previously, the interest was set at the Retail Price Index (RPI) plus up to 3%. In positive news, for 2023 starts it will be set at just the RPI rate of inflation. The student loan interest starts from day one, and the rate for each new academic year is usually based on the RPI from the prior March. In exceptional times (like we’re currently facing with inflation), if the RPI rate is higher than the ‘prevailing market rate’ then the interest will be capped at that. Unfortunately, with this year’s inflation, the rate for 23/24 could be as high as 13.5% though currently there’s a prevailing market cap of 7.1% until August which we hope will continue afterwards.

Source: need-to-knows about ‘Plan 5’ English student finance

If you have any queries regarding the proposed ‘Plan 5’ student finance loan system, please do not hesitate to contact us for a discussion. You can contact us via 0114 3240041 or marc.cooper@nicholasassociates.co.uk.

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