How much UK graduates will pay under Reeves’s student loan rules
In her Autumn Budget, Chancellor Rachel Reeves announced a controversial measure to freeze the repayment threshold for Plan 2 student loans at £29,385 until 2030. This affects around four million graduates who started university between 2012 and 2022 and hold Plan 2 loans.
The change means the threshold, set to rise to £29,385 in April 2026, will remain frozen for three years from April 2027, rather than increasing in line with inflation or earnings. This effectively pulls more income into the repayment net over time and increases deductions for many borrowers.
According to analysis by investment platform AJ Bell, graduates could now face an additional £250 a year in student loan repayments from their payslips by the time the freeze ends in 2030.
Over the full 30-year loan term, this could translate to nearly £10,000 in extra repayments for someone making deductions throughout the period, though the exact figure is uncertain and depends heavily on future inflation, earnings growth, and potential policy shifts.
Impact by income level
The impact varies significantly by income level.
- For low earners below the threshold, nothing changes, they pay zero. However, the freeze could drag some borderline earners into repayments who might otherwise have stayed below it as wages rise.
- Middle earners bear the brunt. They face higher annual deductions without necessarily clearing the loan faster, while accruing more interest due to the larger outstanding balance persisting longer.
- Higher earners already hit by combined marginal deductions – 40% income tax, 2% National Insurance, and 9% student loan repayments, totaling 51% on pay rises above certain levels – will see an extra unwelcome hit.
AJ Bell notes that by 2030, median pay in London could exceed £60,000. A graduate on a Plan 2 loan reaching that salary around age 30 might face roughly £11,500 in income tax, £3,200 in National Insurance, and £2,800 in student loan deductions annually. After a modest 5% pension contribution, take-home pay could dip below £40,000.
For those on higher salaries likely to repay the loan in full before the 30-year write-off, the freeze means paying more overall due to elevated interest accrual, but it could also accelerate debt clearance, reducing lifetime costs compared to letting it run.
Still, many view this as cold comfort, since voluntary overpayments already allow early repayment on their own terms.
Middle-class to be hit the hardest
The worst outcome hits the large group of middle-income graduates who never fully repay but endure 30 years of higher deductions. AJ Bell’s estimates suggest close to £10,000 extra in absolute repayments over the loan’s life for full-term payers, with uncertainty from variables like earnings trajectories and inflation.
The changes have prompted some to reconsider voluntary repayments to clear the debt sooner and avoid prolonged higher costs or the psychological burden of lingering five-figure debt.
AJ Bell notes a strong incentive with Plan 2’s high interest rates (up to RPI + 3%). As a rough benchmark, those with a £50,000 balance start meaningfully reducing capital around the £60,000 salary mark, making early payoff more appealing at higher earnings. Below that, say £40,000 with modest growth, voluntary clearance may not pay off.
For newer borrowers on Plan 5 loans (starting from 2023), the picture differs: a lower £25,000 threshold (close to minimum wage levels), a 40-year term, but lower RPI-only interest.
Current graduates and parents may question paying fees upfront versus borrowing, but it’s highly individual, depending on career earnings, breaks, and future policy risks. Investing saved funds (e.g., £45,000 at 5% annual return) could grow substantially over 10–15 years, potentially outweighing loan costs for lower earners.
