The student finance system is continuously undergoing changes, based on what students need, on what the government and the institutions can offer, as well as on the overall economy of the UK. If you’re already a student in the UK or you’re currently thinking about enrolling and pursuing higher education here, you need to know about the changes that 2023 will bring about.

As you may know, student financing is split into tuition fee loans, which cover the costs of your university or college course, and maintenance loans, which are meant to help you with living expenses. The government’s new ‘Plan 5 loans’ are said to make student finance more expensive for future students, despite the fact that current students or graduates will not be impacted.

Most current students or graduates are familiar with the previous scheme, namely the Plan 2 loans, but under the new plan, graduates will have to repay almost double the original amount, over their lifetime. Plan 5 loans will kick in for undergraduates starting courses from August 2023 onwards.

So, what exactly is the downside?

  • Students will repay their loans for 40 years, not 30.

The fact that a large number of students don’t pay off their entire loans is quite well-known. Under the Plan 2 loans, any student debt is written off after 30 years, starting from the April after graduation. Under the new Plan 5 loans, repayments will be made over 40 years, instead of 30. Having your loans written off when you’re 50, compared to when you’re 60, for example, is clearly a big shift.

  • The repayment salary threshold will drop

Current students and graduates know that they need to repay 9% of their income over £27,295. This threshold will fall, as under the new plan, students making £25,000 or over, will have to make loan repayments. For instance, in the case of a £30K annual salary, this means a change from a £243 repayment rate per year, to £450 per year.

  • Student loan increases don’t match inflation

While this is not necessarily something that can be included under the aegis of Plan 5 changes, it is relevant for people who want to pursue higher education studies in the UK. In the context of growing prices and inflation, as well as a cost of living crisis, maintenance loans are set to increase by just under 3%, thus not keeping up with inflation. Compared to a proportional increase, if maintenance loans don’t go up, students will be £1,500 worse off, per year. Another way to put it is that the maximum loan will be £1,500 lower than it should be.

On the bright side, interest rates will decrease

Students under Plan 2 loans are charged an annual interest that is based on the retail prices index, which is a measure of inflation, and an additional 3%. Plan 5 loans remove the extra 3% and will only take into consideration the RPI. Looking at this through the lens of interests alone, Plan 5 does introduce cheaper loans, compared to Plan 2 loans. Technically, raising interest rates helps combat inflation, but under the new loans scheme, regulators are confident that the additional 3% can be eliminated, to the benefit of the students and the overall student financing system.

Future changes are envisaged for 2025

Some new plans imply splitting university courses up from 2025, so that loans can be taken out for modules, part-time studies and so on. Regulators recently pointed to some changes regarding the lifelong loan entitlement, which are meant to make courses more flexible. Maintenance loans will be made available for students undergoing technical and part-time courses and the first such loans, through the LLE, will be available in 2025. However, remote learners will not be able to access maintenance help.

Why should you still consider going to university in the UK?The value of university degrees has always undergone changes, and the current shifts are no exception. This value, however, substantially increases one’s earning potential, so most graduates believe it’s worth it. It’s important to know what you’re getting into and to do the math, so that you are aware of what you’ll likely have to repay. Ultimately, we strongly believe that UK university degrees are still worth it, since graduates earn, on average, £36K pounds per year, over £10K more than the average salary in the case of non-graduates.