Student loans: what is changing for graduates in April
The earning threshold for Plan 2 student loan repayments in England and Wales will remain frozen for the tax year 2022-23, it has been announced.
Currently, the threshold for undergraduate loan repayments stands at £27,295 per year and will remain at this level from April 2022. As for post-graduate loans, the earning threshold will also remain the same, which is £21,000 per year.
If the earning threshold were to be altered in line with inflation, it would rise by 4.6 per cent.
According to the Institute for Fiscal Studies, the freeze will result in graduates who earn £30,000 repaying £113 more in the year ahead than previously expected.
You can find more information on the amount you are expected to repay here.
Why is the threshold being frozen?
When the Government announced the plan on Friday, it stated that higher education is costing taxpayers more, therefore the Government wanted to ensure that the funding was beneficial for taxpayers as well as those that attended University.
A spokesperson for the Department of Education commented on this:
“It is now more crucial than ever that higher education is underpinned by a sustainable finance and funding system.”
However, some have criticised this announcement, with Ben Waltmann, senior research economist at the Institute for Fiscal Studies referring to it as “a tax rise by stealth”.
How to deal with this
Whilst graduates earning less than the threshold will remain unaffected, graduates (with a Plan 2 loan) earning over the threshold will see a bigger chunk of their income going towards repayments.
The surge in the cost of living, reflected in the inflation rate currently being 5.4 per cent, as well as the planned National Insurance rise are also going to account for people having less disposable income.
Despite this, it is worth noting that for graduates who took out a full-time Maintenance Loan in Wales, the Welsh Government cancels up to £1500 off the loan after the first repayment has been made.
There are some steps that you can take to ease the impact on this rise in outgoings, including:
- If you have a savings bank account, research and ensure that you are getting the highest interest rate possible
- Calculate the loan repayments you will be making and factor it into your budget
- Speak to an advisor about planning your finances for the year ahead
If you require advice with your personal finances, please get in touch with our expert team today.