Attending university has become a significant investment for most students in England as the cost of higher education continues to rise. Recent changes to the student loan repayment system mean that new graduates can now repay their loans for up to forty years, well beyond the repayment times of previous generations.

What are Plan 5 Student Loans?

A Plan 5 student loans is a new type of tuition repayment plan for English students starting undergraduate studies in August 2023. This loan is part of the government’s initiative to reform the student loan system.

Under the Plan 5 loan, students start paying back their loans once they earn over £27,295 a year. Upon loan repayment, these graduates are then asked for 9% of their income above that threshold.

However, unlike previous loan plans, Plan 5 has an extended repayment period, which means Graduates6 have longer to repay their loan. According to the government, the state contribution to college costs will fall from 44p to 19p under the new scheme. This means that individuals pay more and governments pay less, provided graduates end up making enough money to repay their loans within the repayment period.

The impact of the changes

The decision to extend student loan repayments to 40 years will have a significant impact on recent graduates, particularly those who go straight out of high school to college. They will end up repaying their loans over a longer period of time, and any amortization will occur much later, resulting in higher total payments over their lifetime.

Many have criticized that not suitable for students to pay their loans over an extended period of time that their loan repayments effectively resemble a lifetime graduate tax. For many, this increase in costs could leave them in their 60s to pay off their student loans and resort to costly measures to pay them off, whether it be bank overdrafts, expensive loans, debt restructuring, or…