Money expert Martin Lewis has launched a scathing critique of Government plans to freeze student loan repayment thresholds, labelling the proposal a "breach of natural justice" that could cost graduates hundreds of pounds annually.
Graduates Face Higher Repayments Under Freeze Plans
Graduates who completed university within the last fifteen years could see significantly larger deductions from their pay packets if new Government proposals proceed. Former students in well-paid positions might find themselves taking home substantially less each month under the planned changes.
In her second Budget announcement last November, Chancellor Rachel Reeves revealed that from April 2027, the repayment threshold for Plan 2 student loans would remain frozen at £29,385 for three consecutive years. This decision has sparked considerable controversy within financial circles and among affected graduates.
Martin Lewis's Strong Criticism
Taking to social media platform X, Martin Lewis delivered a powerful condemnation of the Government's approach. He asserted that individuals currently holding Plan 2 loans "will repay more" if the threshold remains frozen following the Chancellor's announcement.
"When you freeze a tax threshold, as average earnings and inflation are rising, people have more earnings above the threshold," Lewis explained. "Therefore, they pay a greater proportion of their income in tax. The repayment threshold for Plan 2 student loans operates in exactly the same way. When you freeze it, as people have more earnings above the threshold, they will repay more."
The financial expert suggested that by 2030, former graduates could be paying approximately £250 more annually than they currently do. He further characterised the repayment system for Plan 2 students' education loans as functioning similarly to a "graduate tax."
Understanding Plan 2 Student Loans
Plan 2 student loans apply specifically to English undergraduate students who commenced their courses anywhere in the United Kingdom between September 2012 and July 2023. Welsh students who began their studies since September 2012 also fall under the Plan 2 repayment system.
These loans typically become eligible for clearance thirty years after the April following course completion. The earliest possible wiping of a Plan 2 loan will occur in April 2043, affecting those who finished their studies in 2012/13 and entered repayment in April 2013.
It's crucial to distinguish Plan 2 loans from their predecessors and successors. Plan 1 loans (pre-2012) and Plan 5 loans (post-2023) operate under different repayment terms and thresholds, creating a complex landscape for graduates navigating their financial obligations.
The Broader Tax Context
Martin Lewis expanded his critique by placing the student loan threshold freeze within a wider taxation context. "The main income tax thresholds haven't moved since 2021, while at the same time we've had high inflation, which has pushed up earnings," he noted.
"That means people on the same equivalent incomes pay a greater chunk of it in tax, as more of their earnings are above the thresholds. It also means some graduate earners are reaching the higher 40% tax threshold at an earlier point in their careers than they would've otherwise."
Practical Implications for Graduates
The freeze proposal raises significant concerns for graduates managing their financial futures. With inflation continuing to impact living costs and wage growth, the static repayment threshold effectively increases the financial burden on former students as their earnings rise.
This development particularly affects mid-career professionals who completed their studies within the Plan 2 timeframe and are now experiencing salary progression. The combination of frozen thresholds and rising incomes creates a perfect storm for increased repayment obligations.
Financial experts recommend that concerned graduates seek personalised financial advice to understand how these changes might specifically impact their circumstances. Individual situations vary considerably, and what represents a significant burden for one graduate might affect another differently based on career trajectory, salary progression, and overall financial planning.
The debate surrounding student loan repayment thresholds continues to evolve, with this latest development highlighting the ongoing tension between government fiscal policy and graduate financial wellbeing. As discussions progress, affected individuals are advised to stay informed about potential changes and consider how they might adjust their financial planning accordingly.
